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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2008

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission
file number 814-00188

MEDALLION FINANCIAL CORP.

(Exact name of registrant as specified in its charter)



|                         |  |                                  
|------------------------ |  | ---------------------------------
|DELAWARE                 |  | 04-3291176                       
|(State of Incorporation) |  | (IRS Employer Identification No.)

437 MADISON AVENUE, 38thFloor, NEW YORK, NEW YORK 10022

(Address of principal executive offices) (Zip Code)

(212) 328-2100

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered
pursuant to Section 12(g) of the Act

Common Stock, par value $0.01 per share

(Title of class)

Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES   ̈    NO  x

Indicated by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act:    YES   ̈    NO  x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.    YES  x    NO   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K  x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated
Filer   ̈        Accelerated Filer  x        Non Accelerated
Filer   ̈        Smaller Reporting Company   ̈

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act)    YES   ̈    NO  x

The aggregate market value of the voting common equity held by non-affiliates of the registrant, computed by reference to the last reported price at which the stock was sold on June 30, 2008 was $139,970,810.

The number of outstanding shares of registrants Common Stock, par value $0.01, as of March 11, 2009 was 17,562,724.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants Definitive Proxy Statement for its 2009 Annual Meeting of Shareholders, which Definitive Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the
registrants fiscal year-end of December 31, 2008, are incorporated by reference into Part III of this form 10-K









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MEDALLION FINANCIAL CORP.

2008 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS



|                                                                                                                          |  |   
|------------------------------------------------------------------------------------------------------------------------- |  | --
|PART I                                                                                                                    |  | 3 
|                                                                                                                          | 
|ITEM 1. OUR BUSINESS                                                                                                      |  | 3 
|                                                                                                                          | 
|ITEM 1A. RISK FACTORS                                                                                                     |  | 18
|                                                                                                                          | 
|ITEM 1B. UNRESOLVED STAFF COMMENTS                                                                                        |  | 28
|                                                                                                                          | 
|ITEM 2. PROPERTIES                                                                                                        |  | 28
|                                                                                                                          | 
|ITEM 3. LEGAL PROCEEDINGS                                                                                                 |  | 28
|                                                                                                                          | 
|ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                               |  | 28
|                                                                                                                          | 
|PART II                                                                                                                   |  | 29
|                                                                                                                          | 
|ITEM 
5. MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND
 ISSUER PURCHASE OF EQUITY SECURITIES |  | 29
|                                                                                                                          | 
|ITEM 6. SELECTED FINANCIAL DATA                                                                                           |  | 31
|                                                                                                                          | 
|ITEM 
7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |  | 32
|                                                                                                                          | 
|ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                       |  | 51
|                                                                                                                          | 
|ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                       |  | 52
|                                                                                                                          | 
|ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES                             |  | 52
|                                                                                                                          | 
|ITEM 9A. CONTROLS AND PROCEDURES                                                                                          |  | 52
|                                                                                                                          | 
|ITEM 9B. OTHER INFORMATION                                                                                                |  | 54
|                                                                                                                          | 
|PART III                                                                                                                  |  | 55
|                                                                                                                          | 
|ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE                                                          |  | 55
|                                                                                                                          | 
|ITEM 11. EXECUTIVE COMPENSATION                                                                                           |  | 55
|                                                                                                                          | 
|ITEM 
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
 MATTERS                 |  | 55
|                                                                                                                          | 
|ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                        |  | 55
|                                                                                                                          | 
|ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                           |  | 55
|                                                                                                                          | 
|PART IV                                                                                                                   |  | 55
|                                                                                                                          | 
|ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                                                       |  | 55
|                                                                                                                          | 
|SIGNATURES                                                                                                                |  | 62
|                                                                                                                          | 
|CERTIFICATIONS                                                                                                            |  |   



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The following discussion should be read in conjunction with our financial statements and the notes to
those statements and other financial information appearing elsewhere in this report.

This report contains forward-looking statements
relating to future events and future performance applicable to us within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding
our expectations, beliefs, intentions, or future strategies that are signified by the words expects, anticipates, intends, believes, or similar language. Actual results could differ materially from those anticipated in such forward-looking
statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any forward-looking statements. We caution investors that our business and
financial performance are subject to substantial risks and uncertainties.

PART I



|ITEM 1. | OUR BUSINESS
|------- | ------------

We, Medallion Financial Corp. or the
Company, are a specialty finance company that has a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio company of ours, Medallion Bank,
also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles, and trailers. Our core philosophy has been In niches there are riches. We try to identify markets that are profitable and where we can become
an industry leader. Our investment objectives are to provide high level of distributable income, consistent with the preservation of capital, as well as long-term growth of net asset value and our stock price. We also provide other debt, mezzanine,
and equity investment capital to companies in a variety of industries, consistent with our investment objectives. For additional information about our business and operations, see Managements Discussions and Analysis of Financial
Condition and Results of Operations.

Since 1996, the year in which we became a public company, we have increased our taxicab
medallion loan portfolio at a compound annual growth rate of 10%, and our commercial loan portfolio at a compound annual growth rate of 7% (12% and 13% on a managed basis when combined with Medallion Bank). Since Medallion Bank acquired a consumer
loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 18%. Total assets under our management, which includes assets serviced for third party investors and
managed by Medallion Bank, were $1,075,509,000 as of December 31, 2008 and $1,017,433,000 as of December 31, 2007, and have grown at a compound annual growth rate of 14% from $215,000,000 at the end of 1996. Since our initial public
offering in 1996, we have paid dividends in excess of $131,500,000 or $8.53 per share.

We conduct our business through various
wholly-owned investment company subsidiaries including:



| |  |  | Medallion Funding Corp., or Medallion Funding, a Small Business Investment Company, or SBIC, and a regulated investment company, or RIC, our primary taxicab
medallion lending company;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Medallion Capital, Inc., or Medallion Capital, an SBIC and a RIC, which conducts a mezzanine financing business; and
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | Freshstart Venture Capital Corp., or Freshstart, an SBIC and a RIC, which originates and services taxicab medallion and commercial loans.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------

We also conduct business through our asset-based lending division, Medallion Business Credit, an originator of loans to
small businesses for the purpose of financing inventory and receivables, which prior to December 31, 2007, was a wholly-owned investment company subsidiary. On December 31, 2007, Medallion Business Credit was merged into us and ceased to
exist as a separate legal entity.

In addition, we conduct business through a wholly-owned portfolio company, Medallion Bank, a bank
regulated by the FDIC and the Utah Department of Financial Institutions which originates taxicab medallion, commercial, and consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest
cost of funds which it raises through bank certificates of deposit issued to its customers. To take advantage of this low cost of funds, we refer a portion of our taxicab medallion and commercial loans to Medallion Bank, which then originates these
loans, which are serviced by us. We earn referral and servicing fees for these activities. As a non-investment company, Medallion Bank is not consolidated with the Company, which is an investment company under the 1940 Act.

We are a closed-end, non-diversified management investment company under the Investment Company Act of 1940 (the 1940 Act). We have elected to be treated
as a business development company under the 1940 Act. We have also elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Internal Revenue Code, or the Code. As a RIC, we generally do not have to pay corporate-level
federal income taxes on any net ordinary income or capital gains that we distribute to our shareholders as dividends if we meet certain source-of-income and asset diversification requirements. Medallion Bank is not a RIC and must pay corporate-level
federal income taxes.



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We are managed by our executive officers under the supervision of our board of directors. As a result, we
do not pay investment advisory fees, but instead we incur the operating costs associated with employing investment and portfolio management professionals. Alvin Murstein, our chairman and chief executive officer, has over 45 years of experience in
the ownership, management, and financing of taxicab medallions and other commercial businesses. Andrew M. Murstein, our president, has 20 years of experience and is the third generation in his family to participate in the business.

Since Medallion Bank commenced operations in December 2003, we had historically consolidated Medallion Banks financial statements with those of our
own. Although Medallion Bank is not an investment company, and SEC rules generally do not permit investment companies such as ours to consolidate the financial statements of non-investment companies, such as Medallion Bank, we had sought and
obtained a letter from the SEC in March 2004 permitting such consolidation. We believed that consolidating Medallion Bank provided a more complete and accurate representation of our full scope of operations, and our complete financial position and
results of operations.

During August 2006, we filed a registration statement on Form N-2 which the SEC staff reviewed and on which they
provided comments, including those relating to the consolidation of the accounts of Medallion Bank which have evolved since 2004. Based on discussions with the SEC staff, we determined during the 2006 fourth quarter to voluntarily not consolidate
Medallion Bank and present Medallion Bank as a portfolio company. We determined that this change represents a change in the reporting entity as described in SFAS No. 154, Accounting Changes and Error Corrections. Accordingly we
retrospectively applied this change to the financial statements of all prior periods presented, including previously issued interim periods presented, included in our 2006 Form 10-K. The effect of this retrospective application was to present our
financial position and results of operations as if Medallion Bank had not been consolidated for all periods presented and to present Medallion Bank as an unconsolidated portfolio investment. Although this created changes in the reported levels of
assets, liabilities, revenues, and expenses, our net increase in net assets resulting from operations, shareholders equity, and the related amounts per common share were unchanged.

Because of the change in the reporting entity described above and in note 3 to our consolidated financial statements, our financial condition and results
of operations included in this annual report for the years ended December 31, 2006, 2005, and 2004, including for any interim periods presented, have been adjusted to reflect the change retrospectively for all periods and information presented.

Our Market

We provide loans to
individuals and small to mid-size businesses, both directly through our investment company subsidiaries and also through Medallion Bank, in three primary markets:



| |  |  | loans that finance taxicab medallions;
| | - |  | --------------------------------------



| |  |  | loans that finance commercial businesses; and
| | - |  | ---------------------------------------------



| |  |  | loans that finance consumer purchases of recreational vehicles, boats, motorcycles, and trailers.
| | - |  | -------------------------------------------------------------------------------------------------

The following chart shows the components of our $922,007,000 managed net investment portfolio as of December 31, 2008.



|                                                                |  |                  |         |                      |   |         |                           |  |   |        
|--------------------------------------------------------------- |  | ---------------- | ------- | -------------------- | - | ------- | ------------------------- |  | - | -------
|(Dollars in thousands)                                          |  | On-Balance Sheet |         | Off-Balance Sheet(1) |   |         | Total Managed Investments
|Medallion loans                                                 |  | $                | 402,964 |                      | $ | 122,408 |                           |  | $ | 525,372
|Commercial loans                                                |  |                  | 89,611  |                      |   | 86,612  |                           |  |   | 176,223
|Consumer loans                                                  |  |                  |        |                      |   | 186,305 |                           |  |   | 186,305
|Investments in Medallion Bank and other controlled subsidiaries |  |                  | 74,750  |                      |   | (64,003 | )                         |  |   | 10,747 
|Investment securities                                           |  |                  |        |                      |   | 20,088  |                           |  |   | 20,088 
|Equity investments                                              |  |                  | 3,272   |                      |   |        |                           |  |   | 3,272  
|                                                                |  |                  |         |                      |   |         |                           |  |   |        
|Net investment portfolio                                        |  | $                | 570,597 |                      | $ | 351,410 |                           |  | $ | 922,007
|                                                                |  |                  |         |                      |   |         |                           |  |   |        



|(1) | Off-balance sheet investments are those owned by our wholly-owned unconsolidated portfolio companies, primarily Medallion Bank.
|--- | -------------------------------------------------------------------------------------------------------------------------------

Medallion Loans

Taxi medallion loans of $402,964,000
comprised 70% of our $570,597,000 net investment portfolio as of December 31, 2008, compared to $498,883,000 or 76% of our $653,046,000 net investment portfolio as of December 31, 2007. Managed taxi medallion loans of $525,372,000
comprised 57% of our $922,007,000 managed net investment portfolio as of December 31, 2008, compared to $586,498,000 or 63% of our $934,955,000 managed net investment portfolio as of December 31, 2007. Including loans to unaffiliated



4



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investors, the total amount of medallion loans under our management was $591,413,000 as of December 31, 2008, compared to $590,941,000 as of
December 31, 2007. Since 1979, we and Medallion Bank have originated, on a combined basis, approximately $1,481,827,000 in medallion loans in New York City, Chicago, Boston, Newark, Cambridge, and other cities within the United States. In
addition, our management has a long history of owning, managing, and financing taxicab fleets, taxicab medallions, and corporate car services, dating back to 1956.

Medallion loans collateralized by New York City taxicab medallions and related assets comprised approximately 76% of the value of the medallion loan portfolio as of December 31, 2008 and 80% of the value of the
medallion loan portfolio as of December 31, 2007, and were 74% and 83% on a managed basis. The New York City Taxi and Limousine Commission, or TLC, estimates that the total value of all of New York City taxicab medallions and related assets
exceeded $9.3 billion as of December 31, 2008. We estimate that the total value of all taxicab medallions and related assets in the US exceeded $11.5 billion as of December 31, 2008.

Although some of the medallion loans have from time to time been in arrears or in default, our loss experience on medallion loans has been negligible. We
believe that our medallion loan portfolio is of high credit quality because medallions have generally increased in value and are relatively simple to repossess and resell in an active market. In the past, when a borrower has defaulted on a loan, we
have repossessed the medallion collateralizing that loan. If the loan was not brought current, the medallion was sold in the active market at prices at or in excess of the amounts due.

The following table displays information on managed medallion loans outstanding (other than those managed for third party investors) in each of our major
markets at December 31, 2008. For a presentation of only the consolidated on-balance sheet medallion loans, see the Consolidated Schedule of Investments in the consolidated financial statements on page F-30.



|                                 |  |            |  |                                 |   |  |                          |   |  |                  |         |  
|-------------------------------- |  | ---------- |  | ------------------------------- | - |  | ------------------------ | - |  | ---------------- | ------- | -
|(Dollars in thousands)           |  | # of Loans |  | % ofMedallionLoan Portfolio (1) |   |  | AverageInterest Rate (2) |   |  | PrincipalBalance |        
|Managed medallion loans          |  |            |  |                                 |   |  |                          |   |  |                  |         |  
|New York                         |  | 1,197      |  | 74                              | % |  | 5.98                     | % |  | $                | 386,529 |  
|Chicago                          |  | 350        |  | 9                               |   |  | 7.18                     |   |  |                  | 49,014  |  
|Boston                           |  | 164        |  | 6                               |   |  | 7.48                     |   |  |                  | 34,004  |  
|Newark                           |  | 195        |  | 6                               |   |  | 8.14                     |   |  |                  | 30,229  |  
|Cambridge                        |  | 48         |  | 2                               |   |  | 7.00                     |   |  |                  | 10,628  |  
|Other                            |  | 103        |  | 3                               |   |  | 9.29                     |   |  |                  | 14,718  |  
|                                 |  |            |  |                                 |   |  |                          |   |  |                  |         |  
|Total managed medallion loans    |  | 2,057      |  | 100                             | % |  | 6.43                     |   |  |                  | 525,122 |  
|                                 |  |            |  |                                 |   |  |                          |   |  |                  |         |  
|Deferred loan acquisition costs  |  |            |  |                                 |   |  |                          |   |  |                  | 837     |  
|Unrealized depreciation on loans |  |            |  |                                 |   |  |                          |   |  |                  | (587    | )
|                                 |  |            |  |                                 |   |  |                          |   |  |                  |         |  
|Net managed medallion loans      |  |            |  |                                 |   |  |                          |   |  | $                | 525,372 |  
|                                 |  |            |  |                                 |   |  |                          |   |  |                  |         |  



|(1) | Based on principal balance outstanding at December 31, 2008.
|--- | ------------------------------------------------------------



|(2) | Based on the contractual adjustable or fixed rates of the portfolios at December 31, 2008.
|--- | ------------------------------------------------------------------------------------------

The New York City Market. A New York City taxicab medallion is the only permitted license to operate a taxicab and accept street hails in New York
City. As reported by the TLC, individual (owner-driver) medallions sold for approximately $550,000 and corporate medallions sold for approximately $747,000 as of December 31, 2008. The number of taxicab medallions is limited by law, and as a
result of the limited supply of medallions, an active market for medallions has developed. The law limiting the number of medallions also stipulates that the ownership for the 13,237 medallions outstanding as of December 31, 2008 shall remain
divided into 4,876 individual medallions and 8,361 fleet or corporate medallions. Corporate medallions are more valuable because they can be aggregated by businesses, leased to drivers, and operated for more than one shift. New York City auctioned
600 additional medallions during 2004, 308 during 2006, and 89 during 2008. The medallions auctioned in 2006 were restricted to hybrid fuel vehicles and wheelchair accessible vehicles. In addition, New York City auctioned an additional 63 medallions
for wheelchair accessible vehicles in 2007. New York City announced a 25% fare hike to support the increased level of medallions, which took effect in the 2004 second quarter.

A prospective medallion owner must qualify under the medallion ownership standards set and enforced by the TLC. These standards prohibit individuals with
criminal records from owning medallions, require that the funds used to purchase medallions be derived from legitimate sources, and mandate that taxicab vehicles and meters meet TLC specifications. In addition, before the TLC will approve a
medallion transfer, the TLC requires a letter from the sellers insurer stating that there are no outstanding claims for personal injuries in excess of insurance coverage. After the transfer is approved, the owners taxicab is subject to
quarterly TLC inspections.

Most New York City medallion transfers are handled through approximately 25 medallion brokers licensed by the
TLC. In addition to brokering medallions, these brokers also arrange for TLC documentation insurance, vehicles, meters, and financing. We have excellent relations with many of the most active brokers, and regularly receive referrals from them.
Brokers generated 31% of the loans originated during 2008, and 47% for 2007. However, we receive most of our referrals from a small number of brokers.



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The Chicago Market. We estimate that Chicago medallions currently sell for approximately $155,000
as of December 31, 2008. Pursuant to a municipal ordinance, the number of outstanding medallions is currently capped at 6,700. We estimate that the total value of all Chicago medallions and related assets is over $1,092,000,000 as of
December 31, 2008.

The Boston Market. We estimate that Boston medallions currently sell for approximately $403,000 as of
December 31, 2008. The number of Boston medallions is currently capped at 1,825. We estimate that the total value of all Boston medallions and related assets is over $748,300,000 as of December 31, 2008.

The Newark Market. We estimate that Newark medallions currently sell for approximately $360,000 as of December 31, 2008. The number of Newark
medallions has been limited to 600 since 1950 by local law. We estimate that the total value of all Newark medallions and related assets is over $219,000,000 as of December 31, 2008.

The Cambridge Market. We estimate that Cambridge medallions currently sell for approximately $420,000 as of December 31, 2008. The number of
Cambridge medallions is currently 257. We estimate that the total value of all Cambridge medallions and related assets is over $109,157,000 as of December 31, 2008.

Commercial Loans

Commercial loans finance either the purchase of the equipment and related assets
necessary to open a new business or the purchase or improvement of an existing business. From the inception of the commercial loan business in 1987 through December 31, 2008, we and Medallion Bank have originated more than 10,238 commercial
loans for an aggregate principal amount of approximately $763,785,000. Commercial loans of $89,611,000 comprised 16% of our $570,597,000 net investment portfolio as of December 31, 2008, compared to $91,782,000 or 14% of our $653,688,000 net
investment portfolio as of December 31, 2007. Managed commercial loans of $176,223,000 comprised 19% of our $922,007,000 net investment portfolio as of December 31, 2008, compared to $179,652,000 or 19% of our $934,955,000 managed net
investment portfolio as of December 31, 2007. We have increased our commercial loan activity in recent years, primarily because of the attractive higher yielding, floating rate nature of most of this business. The outstanding balances of
managed commercial loans have grown at a compound annual rate of 13% since 1996. The increase since 1996 has been primarily driven by internal growth through the origination of additional commercial loans. We plan to continue expanding our
commercial loan activities by developing a more diverse borrower base, a wider geographic area of coverage, and by expanding targeted industries.

Commercial loans are generally secured by equipment, accounts receivable, real estate, or other assets, and have interest rates averaging 872 basis points over the prevailing prime rate at year end, up from 487 basis points over prime at
the end of 2007. As with medallion loans, the vast majority of the principals of borrowers personally guarantee commercial loans. The aggregate realized loss of principal on managed commercial loans has averaged 1.9% per annum for the last five
years.

The following table displays information on managed commercial loans outstanding (other than those managed for third party
investors) in each of our major markets at December 31, 2008. For a presentation of only the consolidated on-balance sheet commercial loans, see the Consolidated Schedule of Investments in the consolidated financial statements on page F-30.



|                                 |  |            |  |                                  |   |  |                          |   |  |                  |         |  
|-------------------------------- |  | ---------- |  | -------------------------------- | - |  | ------------------------ | - |  | ---------------- | ------- | -
|(Dollars in thousands)           |  | # of Loans |  | % ofCommercialLoan Portfolio (1) |   |  | AverageInterest Rate (2) |   |  | PrincipalBalance |        
|Managed commercial loans         |  |            |  |                                  |   |  |                          |   |  |                  |         |  
|Asset-based                      |  | 46         |  | 50                               | % |  | 5.45                     | % |  | $                | 92,298  |  
|Secured mezzanine                |  | 37         |  | 36                               |   |  | 14.23                    |   |  |                  | 65,475  |  
|Other secured commercial         |  | 289        |  | 14                               |   |  | 7.88                     |   |  |                  | 24,925  |  
|                                 |  |            |  |                                  |   |  |                          |   |  |                  |         |  
|Total managed commercial loans   |  | 372        |  | 100                              | % |  | 8.93                     |   |  |                  | 182,698 |  
|                                 |  |            |  |                                  |   |  |                          |   |  |                  |         |  
|Deferred loan acquisition costs  |  |            |  |                                  |   |  |                          |   |  |                  | 72      |  
|Unrealized depreciation on loans |  |            |  |                                  |   |  |                          |   |  |                  | (6,547  | )
|                                 |  |            |  |                                  |   |  |                          |   |  |                  |         |  
|Net managed commercial loans     |  |            |  |                                  |   |  |                          |   |  | $                | 176,223 |  
|                                 |  |            |  |                                  |   |  |                          |   |  |                  |         |  



|(1) | Based on principal balance outstanding at December 31, 2008.
|--- | ------------------------------------------------------------



|(2) | Based on the contractual rates of the portfolios at December 31, 2008.
|--- | ----------------------------------------------------------------------

Asset Based Loans. Through our Medallion Business Credit division, we originate, manage, and service asset-based loans to small businesses which require working capital credit facilities ranging from $300,000
to $13,000,000. Medallion Business Credit frequently refers a portion of its potential commercial loans to Medallion Bank to originate, so that we can benefit from Medallion



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Banks lower cost of funds. Additionally, from time to time, Medallion Business Credit also sells and purchases loan participations from independent
third parties. Together, these loans represent approximately 50% of the managed commercial loan portfolio as of December 31, 2008 and 49% as of December 31, 2007. The commercial loans are secured principally by the borrowers accounts
receivable, but may also be secured by inventory, machinery, equipment, and/or real estate, and are personally guaranteed by the principals. Currently, our clients are mostly located in the New York metropolitan area and include wholesale and retail
trade, transportation and warehousing, and other industrial and services businesses. We had successfully established 46 commercial loans as of December 31, 2008.

Secured Mezzanine Loans. Through our subsidiary Medallion Capital, we originate both senior and subordinated loans nationwide to businesses in a variety of industries, including manufacturing and various
service providers, about half of which are located in the upper Midwest and Great Lakes region, with the rest scattered across the country. These loans are primarily secured by a second position on all assets of the businesses, generally range from
$1,000,000 to $5,000,000, and represent approximately 36% of our managed commercial loan portfolio as of December 31, 2008, and 32% as of December 31, 2007. Frequently, we also receive warrants to purchase an equity interest in the
borrowers of secured mezzanine loans.

Other Secured Commercial Loans. We originate other commercial loans that are not concentrated
in any particular industry. These loans represented approximately 14% of the managed commercial loan portfolio as of December 31, 2008, and 19% as of December 31, 2007. Historically, this portfolio had consisted of fixed-rate loans, but
much of the business originated over the last five years has been at adjustable interest rates, generally repricing on their anniversary date. Borrowers include food service, retail establishments, and other industrial and services businesses.

Consumer Loans

Consumer loans are
originated by Medallion Bank, a wholly-owned, unconsolidated portfolio company. Consumer loans of $186,305,000 comprised 20% of our $922,007,000 managed net investment portfolio as of December 31, 2008 and consumer loans of $138,446,000
comprised 15% of our $934,955,000 managed net investment portfolio as of December 31, 2007. The loans are collateralized by recreational vehicles, boats, motorcycles, and trailers located in all 50 states. The portfolio is serviced by a large
third party servicer. We believe that Medallion Banks consumer loan portfolio is of acceptable credit quality given the high interest rates earned on the loans, which compensate for the higher degree of credit risk in the portfolio.

Other

As a business development
company, we also provide debt, mezzanine, and equity investment capital to companies in a variety of industries. These investments may be venture capital style investments which may not be fully collateralized. This is a small, but growing portion
of our business.

Our Strategy

Our
core philosophy has been In niches there are riches. We try to identify markets that are profitable and where we can be an industry leader. Key elements of our strategy include:

Capitalize on our relationships with brokers and dealers. We are committed to establishing, building, and maintaining our relationships with our
brokers and dealers. Our marketing efforts are focused on building relationships with brokers in the medallion market and dealers in the consumer market. We believe that our relationships with brokers and dealers provide us with, in addition to
potential investment opportunities, other significant benefits, including an additional layer of due diligence and additional monitoring capabilities. We have assembled a management team that has developed an extensive network of broker and dealer
relationships in our target market over the last 50 years. We believe that our management teams relationships with these brokers and dealers have and will continue to provide us with significant investment opportunities. During 2008,
approximately 29% of our originated investment transactions were generated by brokers and dealers.

Employ disciplined underwriting
policies and maintain rigorous portfolio monitoring. We have an extensive investment underwriting and monitoring process. We conduct a thorough analysis of each potential investment and its prospects, competitive position, financial performance,
and industry dynamics. We stress the importance of credit and risk analysis in our underwriting process. We believe that our continued adherence to this disciplined process will permit us to continue to generate a stable, diversified and increasing
revenue stream of current income from our debt investments to enable us to make distributions to our shareholders.

Leverage the skills
of our experienced management team. Our management team is led by our Chief Executive Officer, Mr. Alvin Murstein, and our President, Mr. Andrew M. Murstein. Alvin Murstein has over 45 years of experience in the ownership,
management, and financing of taxicab medallions and other commercial businesses, and Andrew M. Murstein is the third generation in his family to participate in the business. The other members of our management team have broad investment backgrounds,
with prior experience at specialty finance companies, middle market commercial banks, and other financial services companies. We believe that the experience and contacts of our management team will continue to allow us to effectively implement the
key aspects of our business strategy.



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Perform Strategic Acquisitions. In addition to increasing market share in existing lending markets
and identifying new niches, we seek to acquire medallion financing businesses and related portfolios and specialty finance companies that make secured loans to small businesses which have experienced historically low loan losses similar to our own.
Since our initial public offering in May 1996, eight specialty finance companies, five loan portfolios, and three taxicab rooftop advertising companies have been acquired. Our most recent acquisition was the purchase of a taxicab medallion loan
portfolio by Medallion Bank in October 2008 for $25,584,000.

Investment Activity

The following table sets forth the components of investment activity in the managed investment portfolio for the periods indicated.



|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|----------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                            |  | Year ended December 31, |         
|(Dollars in thousands)                                      |  | 2008                    |          |   | 2007 |   |          | 2006 | 
|Net investments at beginning of year                        |  | $                       | 934,955  |   |      | $ | 833,639  |      |  | $ | 722,748  |  
|Investments originated                                      |  |                         | 413,461  |   |      |   | 455,325  |      |  |   | 434,627  |  
|Repayments of investments                                   |  |                         | (422,659 | ) |      |   | (342,102 | )    |  |   | (358,898 | )
|Net increase in unrealized depreciation(1)                  |  |                         | (5,055   | ) |      |   | (13,005  | )    |  |   | (1,671   | )
|Net realized gains (losses) on investments(2)               |  |                         | (12,703  | ) |      |   | 8,268    |      |  |   | 6,273    |  
|Transfers to other assets/liabilities, net                  |  |                         | (8,893   | ) |      |   | (5,392   | )    |  |   | (3,664   | )
|Amortization of origination costs                           |  |                         | (2,683   | ) |      |   | (1,778   | )    |  |   | (1,479   | )
|Purchase of Elk Associates Funding medallion loan portfolio |  |                         | 25,584   |   |      |   |         |      |  |   |         |  
|Purchase of Banco Popular medallion loan portfolio          |  |                         |         |   |      |   |         |      |  |   | 35,703   |  
|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in investments                      |  |                         | (12,948  | ) |      |   | 101,316  |      |  |   | 110,891  |  
|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net investments at end of year                              |  | $                       | 922,007  |   |      | $ | 934,955  |      |  | $ | 833,639  |  
|                                                            |  |                         |          |   |      |   |          |      |  |   |          |  



|(1) | Excludes net unrealized appreciation of $7,273, $6,740, and $921 for the years ended December 31, 2008, 2007, and 2006, related to foreclosed properties, which are carried in
other assets on the consolidated balance sheet.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Excludes net realized gains of $1,064, $1,336, and $4 for the years ended December 31, 2008, 2007, and 2006, related to foreclosed properties, which are carried in other assets
on the consolidated balance sheet, and $700,000 for the year ended December 31, 2007 related to the retirement of trust preferred securities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Characteristics

Medallion Loans.Our medallion loan portfolio consists of mostly fixed-rate loans,
collateralized by first security interests in taxicab medallions and related assets (vehicles, meters, and the like). The portfolio was originated at an approximate loan-to-value ratio range of 80-90%. We estimate that the average loan-to-value
ratio of all of the medallion loans was approximately 42% as of December 31, 2008. In addition, we have recourse against a vast majority of the owners of the taxicab medallions and related assets through personal guarantees.

Medallion loans generally require equal monthly payments covering accrued interest and amortization of principal over a ten to fifteen year schedule,
subject to a balloon payment of all outstanding principal after four or five years. More recently, we have begun to originate loans with one-to-three year maturities where interest rates are adjusted and a new maturity period set. Borrowers may
prepay medallion loans upon payment of a fee of approximately 90 days interest.

We generally retain the medallion loans we
originate; however, from time to time, we participate or sell shares of some loans or portfolios to interested third party financial institutions. In these cases, we retain the borrower relationships and service the sold loans.

Commercial Loans.We have originated commercial loans in principal amounts ranging from $50,000 to approximately $13,000,000. These loans are
generally retained and typically have maturities ranging from one to ten years and require equal monthly payments covering accrued interest and amortization of principal over a four to five year term. Substantially all loans may be prepaid with a
fee ranging from 30 to 120 days interest. The term of, and interest rate charged on, certain of our outstanding loans are subject to SBA regulations. Under SBA regulations, the maximum rate of interest permitted on loans originated by us is
19%. Unlike medallion loans, for which competition precludes us from charging the maximum rate of interest permitted under SBA regulations, we are able to charge the maximum rate on certain commercial loans. We believe that the increased yield on
commercial loans compensates for their higher risk relative to medallion loans and further illustrates the benefits of diversification.

Commercial loans are generally originated at an average loan-to-value ratio of 70 to 75%. Substantially all of the commercial loans are collateralized by security interests in the assets being financed by the borrower. In addition, we have
recourse against the vast majority of the principals of borrowers who personally guarantee the loans. Although personal guarantees increase the



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commitment of borrowers to repay their loans, we cannot assure you that the assets available under personal guarantees would, if required, be sufficient to
satisfy the obligations secured by such guarantees. In certain cases, equipment vendors may provide full and partial recourse guarantees on loans.

Consumer Loans. Consumer loans generally require equal monthly payments covering accrued interest and amortization of principal over a negotiated term, generally around ten years. Interest rates offered are both floating and fixed,
and certain of the floating rate notes have built in caps or floors. Borrowers may prepay consumer loans without any prepayment penalty. In general, Medallion Bank has established relationships with dealers in the industry, who are the sources for
most of the customers of Medallion Bank.

Marketing, Origination, and Loan Approval Process

We employ 20 loan originators to originate medallion, commercial, and consumer loans. Each loan application is individually reviewed through analysis of a
number of factors, including loan-to-value ratios, a review of the borrowers credit history, public records, personal interviews, trade references, personal inspection of the premises, and approval from the TLC, SBA, or other regulatory body,
if applicable. Each medallion and commercial loan applicant is required to provide personal or corporate tax returns, premises leases, and/or property deeds. Senior management establishes loan origination criteria. Loans that conform to such
criteria may be processed by a loan officer with the proper credit authority, and non-conforming loans must be approved by the chief executive officer and/or the chief credit officer. Both medallion and commercial loans are sourced from brokers with
extensive networks of applicants, and commercial loans are also referred by contacts with banks, attorneys, and accounting firms. Consumer loans are primarily sourced through relationships which have been established with recreational vehicle and
boat dealers throughout our market area.

Sources of Funds

We have historically funded our lending operations primarily through credit facilities with bank syndicates and, to a lesser degree, through equity or debt offerings or private placements, and fixed-rate, senior
secured notes and long-term subordinated debentures issued to or guaranteed by the SBA. Since the inception of Medallion Bank, substantially all of Medallion Banks funding has been provided by FDIC insured brokered certificates of deposit. The
determination of funding sources is established by our management, based upon an analysis of the respective financial and other costs and burdens associated with funding sources. Our funding strategy and interest rate risk management strategy is to
have the proper structuring of debt to minimize both rate and maturity risk, while maximizing returns with the lowest cost of funding over an intermediate period of time.



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The table below summarizes our cash levels and borrowings as of December 31, 2008, and amounts
outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2008. See note 5 to the consolidated financial statements for additional information about each credit facility.



|                                                                                                                    |  |       |             |  
|------------------------------------------------------------------------------------------------------------------- |  | ----- | ----------- | -
|Consolidated Sources of Funds(Dollars in thousands)                                                                 |  | Total |            
|Cash and cash equivalents                                                                                           |  | $     | 32,075      |  
|Bank loans                                                                                                          |  |       | 28,000      |  
|Amounts undisbursed                                                                                                 |  |       | 13,000      |  
|Amounts outstanding                                                                                                 |  |       | 26,542      |  
|Average interest rate                                                                                               |  |       | 4.47        | %
|Maturity                                                                                                            |  |       | 7/09-7/11   |  
|Preferred securities                                                                                                |  | $     | 33,000      |  
|Average interest rate                                                                                               |  |       | 7.68        | %
|Maturity                                                                                                            |  |       | 9/37        |  
|Lines of credit                                                                                                     |  | $     | 425,000     |  
|Amounts undisbursed                                                                                                 |  |       | 110,142     |  
|Amounts outstanding                                                                                                 |  |       | 314,858     |  
|Average interest rate                                                                                               |  |       | 3.28        | %
|Maturity                                                                                                            |  |       | 11/09-12/13 |  
|Margin loan                                                                                                         |  | $     |            |  
|Average interest rate                                                                                               |  |       |            |  
|Maturity                                                                                                            |  |       | N/A         |  
|SBA debentures                                                                                                      |  | $     | 96,750      |  
|Amounts undisbursed                                                                                                 |  |       | 8,500       |  
|Amounts outstanding                                                                                                 |  |       | 88,250      |  
|Average interest rate                                                                                               |  |       | 6.10        | %
|Maturity                                                                                                            |  |       | 9/11-3/19   |  
|                                                                                                                    |  |       |             |  
|Total cash and cash equivalents and amounts remaining undisbursed under credit facilities                           |  | $     | 163,717     |  
|                                                                                                                    |  |       |             |  
|Total debt outstanding                                                                                              |  | $     | 462,650     |  
|                                                                                                                    |  |       |             |  
|Medallion Bank Sources of Funds                                                                                     |  |       |             |  
|Cash and cash equivalents                                                                                           |  | $     | 9,401       |  
|Deposits                                                                                                            |  |       | 366,408     |  
|Average Interest Rate                                                                                               |  |       | 3.85        | %
|Maturity                                                                                                            |  |       | 1/09-11/11  |  
|                                                                                                                    |  |       |             |  
|Total cash and cash equivalents and amounts remaining undisbursed under credit facilities, including Medallion Bank |  | $     | 173,118     |  
|                                                                                                                    |  |       |             |  
|Total debt outstanding, including Medallion Bank                                                                    |  | $     | 829,058     |  
|                                                                                                                    |  |       |             |  

We fund our fixed-rate loans with variable-rate credit lines and bank debt, and with fixed-rate
SBA debentures. The mismatch between maturities and interest-rate sensitivities of these balance sheet items results in interest rate risk. We seek to manage our exposure to increases in market rates of interest to an acceptable level by:



| |  |  | Originating adjustable rate loans;
| | - |  | ----------------------------------



| |  |  | Incurring fixed-rate debt; and
| | - |  | ------------------------------



| |  |  | Purchasing interest rate caps to hedge a portion of variable-rate debt against increases in interest rates.
| | - |  | -----------------------------------------------------------------------------------------------------------

Nevertheless, we accept varying degrees of interest rate risk depending on market conditions. For additional discussion of our funding sources and asset
liability management strategy, see Asset/Liability Management on page 46.

Competition

Banks, credit unions, and finance companies, some of which are SBICs, compete with us in originating medallion, commercial, and consumer loans. In
addition, finance subsidiaries of equipment manufacturers also compete with us in originating commercial loans. Many of these competitors have greater resources than we do and certain competitors are subject to less restrictive regulations than us.
As a result, we cannot assure you that we will be able to identify and complete the financing transactions that will permit us to compete successfully.



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Employees

As of December 31, 2008 we employed 127 persons, including 33 at our Medallion Bank subsidiary. We believe that relations with all of our employees are good.

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

The following discussion is a general summary of the
material US federal income tax considerations applicable to us and to an investment in shares of our common stock. This summary does not purport to be a complete description of the income tax considerations applicable to such an investment. For
example, we have not described tax consequences that we assume to be generally known by investors or certain considerations that may be relevant to certain types of holders subject to special treatment under US federal income tax laws, including
shareholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, dealers in securities, pension plans and trusts, and financial institutions. This summary assumes that investors hold our common stock as capital
assets (within the meaning of the Code). The discussion is based upon the Code, Treasury regulations, and administrative and judicial interpretations, each as of the date of this annual report and all of which are subject to change, possibly
retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the Internal Revenue Service, or the IRS, regarding an investment in our common stock. This summary does not discuss
any aspects of US estate or gift tax; or foreign, state, or local tax. It does not discuss the special treatment under US federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets.

A US shareholder is a beneficial owner of shares of our common stock that is for US federal income tax purposes:



| |  |  | a citizen or individual resident of the United States;
| | - |  | ------------------------------------------------------



| |  |  | a corporation, or other entity treated as a corporation for US federal income tax purposes, created or organized in or under the laws of the US or any state thereof
or the District of Columbia; or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a trust or an estate, the income of which is subject to US federal income taxation regardless of its source.
| | - |  | ------------------------------------------------------------------------------------------------------------

A non-US shareholder is a beneficial owner of shares of our common stock that is not a US shareholder.

If a partnership (including an entity treated as a partnership for US federal income tax purposes) holds shares of our common stock, the tax treatment of
a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective shareholder that is a partner of a partnership holding shares of our common stock should consult its tax advisors
with respect to the purchase, ownership, and disposition of shares of our common stock.

Tax matters are very complicated and the tax
consequences to an investor of an investment in our shares will depend on the facts of his, her, or its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment,
including tax reporting requirements, the applicability of federal, state, local, and foreign tax laws, eligibility for the benefits of any applicable tax treaty and the effect of any possible changes in the tax laws.

Election to be Taxed as a RIC

As a business
development company, we have elected to be treated as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any ordinary income or capital gains that we distribute to our
shareholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to obtain RIC tax treatment we must distribute to our shareholders,
for each taxable year, at least 90% of our investment company taxable income, which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, or the Annual
Distribution Requirement.

Taxation as a RIC

If we:



| |  |  | qualify as a RIC; and
| | - |  | ---------------------



| |  |  | satisfy the Annual Distribution Requirement;
| | - |  | --------------------------------------------

then we
will not be subject to federal income tax on the portion of our investment company taxable income and net capital gain ( i.e., net long-term capital gains in excess of net short-term capital losses) we distribute to shareholders. We will be
subject to US federal income tax at the regular corporate rates on any income or capital gain not distributed (or deemed distributed) to our shareholders.

We will be subject to a 4% nondeductible federal excise tax on certain undistributed income of RICs unless we distribute in a timely manner an amount at least equal to the sum of (1) 98% of our ordinary income
for each calendar year, (2) 98% of our capital gain net income for the one-year period ending October 31 in that calendar year, and (3) any income realized, but not distributed, in preceding years, or the Excise Tax Avoidance
Requirement. We currently intend to make sufficient distributions each taxable year to satisfy the Excise Tax Avoidance Requirement.



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In order to qualify as a RIC for federal income tax purposes, we must, among other things:



| |  |  | qualify to be treated as a business development company under the 1940 Act at all times during each taxable year;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of
stock or other securities, or other income derived with respect to our business of investing in such stock or securities, and net income derived from interests in qualified publicly traded partnerships (i.e., partnerships that are traded
on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains, and other traditional permitted mutual fund income) or the 90% Income Test; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | diversify our holdings so that at the end of each quarter of the taxable year:
| | - |  | ------------------------------------------------------------------------------



| |  |  | at least 50% of the value of our assets consists of cash, cash equivalents, US Government securities, securities of other RICs, and other securities if such other
securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | no more than 25% of the value of our assets is invested in the securities, other than US Government securities or securities of other RICs, of one issuer or of two
or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships, or the
Diversification Tests.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We may be required to recognize taxable income in circumstances in which we do not receive cash.
For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with payment-in-kind interest or, in certain cases, increasing interest rates or issued with warrants),
we must include in income each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any original issue
discount accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our shareholders in order to satisfy the Annual Distribution Requirement, even though we will not have
received any corresponding cash amount.

Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the
lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long-term or short-term, depending on how long we held a particular warrant.

We are authorized to borrow funds and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to
make distributions to our shareholders while our debt obligations and other senior securities are outstanding unless certain asset coverage tests are met. See RegulationSenior Securities. Moreover, our ability to
dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the diversification tests. If we dispose of assets
in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.

If we fail to satisfy the Annual Distribution Requirement or otherwise fail to qualify as a RIC in any taxable year, we will be subject to tax in that
year on all of our taxable income, regardless of whether we make any distributions to our shareholders. In that case, all of our income will be subject to corporate-level federal income tax, reducing the amount available to be distributed to our
shareholders. In contrast, assuming we qualify as a RIC, our corporate-level federal income tax should be substantially reduced or eliminated. See Election to be Taxed as a RIC above.

The remainder of this discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement.

Taxation of US Shareholders

Distributions by us
generally are taxable to US shareholders as ordinary income or capital gains. Distributions of our investment company taxable income (which is, generally, our ordinary income plus realized net short-term capital gains in excess of
realized net long-term capital losses) will be taxable as ordinary income to US shareholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional common stock. To the extent such
distributions paid by us to non-corporate shareholders (including individuals) are attributable to dividends from US corporations and certain qualified foreign corporations, such distributions generally will be eligible for a maximum tax rate of 15%
for taxable years beginning before January 1, 2011. In this regard, it is anticipated that distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the 15% maximum rate.
Distributions of our net capital gains (which is generally our realized net long-term



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capital gains in excess of realized net short-term capital losses) properly designated by us as capital gain dividends will be taxable to a US
shareholder as long-term capital gains (currently at a maximum rate of 15% in the case of individuals, trusts, or estates), regardless of the US shareholders holding period for his, her, or its common stock, and regardless of whether paid in
cash or reinvested in additional common stock. Distributions in excess of our earnings and profits first will reduce a US shareholders adjusted tax basis in such shareholders common stock and, after the adjusted basis is reduced to zero,
will constitute capital gains to such US shareholder.

Although we currently intend to distribute any long-term capital gains at least
annually, we may in the future decide to retain some or all of our long-term capital gains, but designate the retained amount as a deemed distribution. In that case, among other consequences, we will pay tax on the retained amount, each
US shareholder will be required to include his, her, or its share of the deemed distribution in income as if it had been actually distributed to the US shareholder, and the US shareholder will be entitled to claim a credit equal to his, her, or its
allocable share of the tax paid thereon by us. The amount of the deemed distribution net of such tax will be added to the US shareholders tax basis for his, her, or its common stock. Since we expect to pay tax on any retained capital gains at
our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual shareholders will be treated as having paid and for which they will
receive a credit will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the US shareholders other federal income tax obligations or may be refunded to the extent it exceeds a
shareholders liability for federal income tax. A shareholder that is not subject to federal income tax or otherwise required to file a federal income tax return would be required to file a federal income tax return on the appropriate form in
order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our shareholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat
any of our investment company taxable income as a deemed distribution.

For purposes of determining (1) whether the Annual
Distribution Requirement is satisfied for any year and (2) the amount of capital gain dividends paid for that year, we may, under certain circumstances, elect to treat a dividend that is paid during the following taxable year as if it had been
paid during the taxable year in question. If we make such an election, the US shareholder will still be treated as receiving the dividend in the taxable year in which the distribution is made. However, any dividend declared by us in October,
November, or December of any calendar year, payable to shareholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it had been received by our US shareholders on
December 31 of the year in which the dividend was declared.

If an investor purchases shares of our common stock shortly before the
record date of a distribution, the price of the shares will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of his, her, or its investment.

A shareholder generally will recognize taxable gain or loss if the shareholder sells or otherwise disposes of his, her, or its shares of our common
stock. Any gain arising from such sale or disposition generally will be treated as capital gain or loss if the shareholder has held his, her or its shares for more than one year. Otherwise, it would be classified as short-term capital gain or loss.
However, any capital loss arising from the sale or disposition of shares of our common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed
capital gain deemed received, with respect to such shares. In addition, all or a portion of any loss recognized upon a disposition of shares of our common stock may be disallowed if other shares of our common stock are purchased (whether through
reinvestment of distributions or otherwise) within 30 days before or after the disposition.

In general, individual and other non-corporate
US shareholders currently are subject to a maximum federal income tax rate of 15% on their net capital gain, i.e., the excess of realized net long-term capital gain over realized net short-term capital loss for a taxable year, including a long-term
capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. Corporate US shareholders currently are subject to federal income tax on net capital gain at the
maximum 35% rate also applied to ordinary income. Non-corporate shareholders with net capital losses for a year (i.e., capital losses in excess of capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each
year; any net capital losses of a non-corporate shareholder in excess of $3,000 generally may be carried forward and used in subsequent years as provided in the Code. Corporate shareholders generally may not deduct any net capital losses against
ordinary income for a year, but may carryback such losses for three years or carry forward such losses for five years.

We will send to
each of our US shareholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share basis, the amounts includible in such US shareholders taxable income for such year as ordinary income and as long-term
capital gain. In addition, the federal tax status of each years distributions generally will be reported to the IRS (including the amount of dividends, if any, eligible for the 15% maximum rate). Distributions may also be subject to additional
state, local, and foreign taxes depending on a US shareholders particular situation. Dividends distributed by us generally will not be eligible for the dividends-received deduction or the 15% maximum rate applicable to qualifying dividends.



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We may be required to withhold federal income tax (backup withholding) currently at a rate of
28% from all taxable distributions to any non-corporate US shareholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such shareholder is exempt from backup withholding, or (2) with respect
to whom the IRS notifies us that such shareholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individuals taxpayer identification number is his or her social
security number. Any amount withheld under backup withholding is allowed as a credit against the US shareholders federal income tax liability and may entitle such shareholder to a refund, provided that proper information is timely provided to
the IRS.

Taxation of Non-US Shareholders

Whether an investment in our common stock is appropriate for a non-US shareholder will depend upon that persons particular circumstances. An investment in our common stock by a non-US shareholder may have adverse tax consequences.
Non-US shareholders should consult their tax advisers before investing in our common stock.

Dividends paid by us to non-US shareholders
are generally subject to withholding at a 30% rate or a reduced rate specified by an applicable income tax treaty to the extent derived from investment income and short-term capital gains. In order to obtain a reduced rate of withholding, a non-US
shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a treaty. The withholding tax does not apply to regular dividends paid to a non-US shareholder who provides a Form W-8ECI, certifying that the
dividends are effectively connected with the non-US shareholders conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular US income tax as if the non-US shareholder were a
US shareholder. A non-US corporation receiving effectively connected dividends may also be subject to additional branch profits tax imposed at a rate of 30% (or lower treaty rate). A non-US shareholder who fails to provide an IRS Form
W-8BEN or other applicable form may be subject to backup withholding at the appropriate rate.

In general, US federal withholding tax will
not apply to any gain or income realized by a non-US shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, exempt-interest dividends, or upon the sale or other disposition of shares of our
common stock.

For taxable years beginning before January 1, 2008, properly-designated dividends are generally exempt from US federal
withholding tax where they (i) are paid in respect of our qualified net interest income (generally, our US source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership
in which we are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) are paid in respect of our qualified short-term capital gains (generally, the excess of our net short-term capital gain over
our long-term capital loss for such taxable year). However, depending on our circumstances, we may designate all, some or none of its potentially eligible dividends as such qualified net interest income or as qualified short-term capital gains,
and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding. In order to qualify for this exemption from withholding, a non-US shareholder will need to comply with applicable certification requirements
relating to its non-US status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares held through an intermediary, the intermediary may withhold even if we designate the payment as qualified net interest
income or qualified short-term capital gain. Non-US shareholders should contact their intermediaries with respect to the application of these rules to their accounts.

Non-US persons should consult their own tax advisors with respect to the US federal income tax and withholding tax, and state, local, and foreign tax consequences of an investment in the shares.

Failure to Qualify as a RIC

If we were unable to
qualify for treatment as a RIC, we would be subject to tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to shareholders, nor would they be required to be made. Distributions would generally be
taxable to our shareholders as ordinary dividend income eligible for the 15% maximum rate for taxable years beginning before 2011 to the extent of our current and accumulated earnings and profits for federal tax purposes. Subject to certain
limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the
shareholders tax basis, and any remaining distributions would be treated as a capital gain.



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GOVERNMENT REGULATION

Regulation under the 1940 Act

We have elected to be treated as a business development company under the 1940 Act. The 1940
Act contains prohibitions and restrictions relating to transactions between business development companies and their affiliates (including any investment advisers or sub-advisers), principal underwriters and affiliates of those affiliates or
underwriters, and requires that a majority of the directors be persons other than interested persons, as that term is defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to
cease to be, or to withdraw our election as, a business development company unless approved by a majority of our outstanding voting securities voting as a class.

Qualifying Assets

Under the 1940 Act, a business development company may not acquire any asset other than assets of the
type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the companys total assets. The principal categories of
qualifying assets relevant to our business are the following:

(1) Securities purchased in transactions not involving any
public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible
portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which:

(a) is organized under the laws of, and has its principal place of business in, the US;

(b) is not an investment company (other than a small business investment company wholly owned by the business development company) or a
company that would be an investment company but for certain exclusions under the 1940 Act; and

(c) satisfies any of the
following:



| |  |  | does not have any class of securities listed on a national securities exchange;
| | - |  | -------------------------------------------------------------------------------



| |  |  | is controlled by a business development company or a group of companies including a business development company and the business development company has an
affiliated person who is a director of the eligible portfolio company; or
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------

(2) Securities of any eligible portfolio company which we control.

(3) Securities purchased in transactions not involving any public offering from a US issuer that is not an investment company or from an
affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came
due without material assistance other than conventional lending or financing arrangements.

(4) Securities of an eligible
portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own at least 60% of the outstanding equity of the eligible portfolio company.

(5) Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or
pursuant to the exercise of warrants or rights relating to such securities.

(6) Cash, cash equivalents, US Government
securities or high-quality debt securities maturing in one year or less from the time of investment.

(7) Securities issued
by a company that met the definition of eligible portfolio company at the time of our initial investment but subsequently does not meet the definition because the company no longer meets the definition set forth above.

Managerial Assistance to Portfolio Companies

In
addition, a business development company must have been organized and have its principal place of business in the US and must be operated for the purpose of making investments in the types of securities described in (1), (2), or (3) above.
However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the business development company must either control the issuer of the securities or must offer to make available to the issuer of the securities
(other than small and solvent companies described above) significant managerial assistance; except that, where the business development company purchases such securities in conjunction with one or more other persons acting together, one of the other
persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the business development company, through its directors, officers, or employees, offers to
provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations, or business objectives and policies of a portfolio company.

Temporary Investments

Pending investment in other types of qualifying assets, as
described above, our investments may consist of cash equivalents, US government securities, or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that
70% of our assets are qualifying assets. Typically, we will invest in US Treasury bills



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or in repurchase agreements, provided that such agreements are fully collateralized by cash or securities issued by the US government or its agencies. A
repurchase agreement involves the purchase by an investor, such as us, of a specified security and the simultaneous agreement by the seller to repurchase it at an agreed-upon future date and at a price which is greater than the purchase price by an
amount that reflects an agreed-upon interest rate. There is no percentage restriction on the proportion of our assets that may be invested in such repurchase agreements.

Senior Securities

We are permitted, under specified conditions, to issue multiple classes of
indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 200% immediately after each such issuance. In addition, while any senior securities remain outstanding, we must
make provisions to prohibit any distribution to our shareholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow amounts up to 5% of
the value of our total assets for temporary or emergency purposes without regard to full asset coverage requirements. In addition to the 1940 Act, we are subject to two exemptive orders which govern how we calculate our senior securities. For a
discussion of the risks associated with leverage, see Risk FactorsRisks Relating to Our Business and StructureRegulations governing our operation as a business development company will affect our ability to, and the way in which we
raise additional capital.

Regulation by the SBA

Medallion Funding, Medallion Capital, and Freshstart each operate as Small Business Investment Companies, or SBICs. The SBIA authorizes the organization of SBICs as vehicles for providing equity capital,
long term financing, and management assistance to small business concerns. The SBIA and the SBA regulations define a small business concern as a business that is independently owned and operated, which does not dominate its field of
operation, and which (i) has a net worth, together with any affiliates, of $18.0 million or less and average annual net income after US federal income taxes for the preceding two years of $6.0 million or less (average annual net income is
computed without the benefit of any carryover loss), or (ii) satisfies alternative criteria under SBA regulations that focus on the industry in which the business is engaged and the number of persons employed by the business or its gross
revenues. In addition, at the end of each year, at least 20% of the total amount of loans made after April 25, 1994 must be made in smaller businesses which have a net worth of $6.0 million or less, and average net income after
federal income taxes for the preceding two years of $2.0 million or less. SBA regulations also prohibit an SBIC from providing funds to a small business concern for certain purposes, such as relending and reinvestment.

Medallion Funding is authorized to make loans to borrowers other than disadvantaged businesses (that is, businesses that are at least 50% owned, and
controlled, and managed, on a day to day basis, by a person or persons whose participation in the free enterprise system is hampered because of social or economic disadvantage) if, at the time of the loan, Medallion Funding has in its portfolio
outstanding loans to disadvantaged businesses with an aggregate cost basis equal to or exceeding the value of the unamortized repurchase discount under the preferred stock repurchase agreement between Medallion Funding and the SBA, which is
currently zero.

Under current SBA Regulations, the maximum rate of interest that Medallion Funding may charge may not exceed the higher of
(i) 19% or (ii) the sum of (a) the higher of (i) that companys weighted average cost of qualified borrowings, as determined under SBA Regulations, or (ii) the current SBA debenture rate, plus (b) 11%, rounded to
the next lower eighth of one percent. As of December 31, 2008, the maximum rate of interest permitted on loans originated by the Medallion Funding, Medallion Capital, and Freshstart was 19%. As of December 31, 2008, our outstanding
medallion loans had a weighted average rate of interest 6.42% and our outstanding commercial loans had a weighted average rate of interest of 11.97%. Current SBA regulations also require that each loan originated by an SBIC have a term of between
one and 20 years; loans to disadvantaged businesses also may be for a minimum term of one year.

The SBA restricts the ability of SBICs to
repurchase their capital stock, to retire their SBA debentures, and to lend money to their officers, directors, and employees, or invest in affiliates thereof. The SBA also prohibits, without prior SBA approval, a change of control or
transfers which would result in any person (or group of persons acting in concert) owning 10% or more of any class of capital stock of an SBIC. A change of control is any event which would result in the transfer of the power, direct or
indirect, to direct the management and policies of an SBIC, whether through ownership, contractual arrangements, or otherwise.

Under SBA
Regulations, without prior SBA approval, loans by licensees with outstanding SBA leverage to any single small business concern may not exceed 20% of an SBICs regulatory capital, as defined. Under the terms of the respective conversion
agreements with the SBA, however, Medallion Funding is authorized to make loans to disadvantaged borrowers in amounts not exceeding 30% of its respective regulatory capital.

SBICs must invest idle funds that are not being used to make loans in investments permitted under SBA regulations. These permitted investments include
direct obligations of, or obligations guaranteed as to principal and interest by, the government of the US with a term of 15 months or less and deposits maturing in one year or less issued by an institution insured by the FDIC. These



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permitted investments must be maintained in (i) direct obligations of, or obligations guaranteed as to principal and interest by, the US, which mature
within 15 months from the date of the investment; (ii) repurchase agreements with federally insured institutions with a maturity of seven days or less if the securities underlying the repurchase agreements are direct obligations of, or
obligations guaranteed as to principal and interest by the US, and such securities must be maintained in a custodial account in a federally insured institution; (iii) certificates of deposit with a maturity of one year or less, issued by a
federally insured institution; (iv) a deposit account in a federally insured institution, subject to withdrawal restriction of one year or less; (v) a checking account in a federally insured institution; or (vi) a reasonable petty
cash fund.

SBICs may purchase voting securities of small business concerns in accordance with SBA regulations. Although prior regulations
prohibited an SBIC from controlling a small business concern except in limited circumstances, new regulations adopted by the SBA on October 22, 2002 (pursuant to Public Law 106-554) now allow an SBIC to exercise control over a small business
for a period of seven years from the date on which the SBIC initially acquires its control position. This control period may be extended for an additional period of time with the SBAs prior written approval.

Regulation of Medallion Bank as an Industrial Bank

In May 2002, we formed Medallion Bank, which received approval from the FDIC for federal deposit insurance in October 2003. Medallion Bank, a Utah-chartered industrial bank, is a depository institution subject to regulatory oversight and
examination by both the FDIC and the Utah Department of Financial Institutions. Under its banking charter, Medallion Bank is empowered to make consumer and commercial loans, and may accept all FDIC-insured deposits other than demand deposits
(checking accounts). The creation of Medallion Bank allows us to apply stable and low-cost bank deposit funding for key lending business activities throughout our business.

Medallion Bank is subject to certain federal laws that restrict and control its ability to extend credit and provide or receive services between
affiliates. In addition, the FDIC has regulatory authority to prohibit Medallion Bank from engaging in any unsafe or unsound practice in conducting its business.

Medallion Bank is further subject to capital adequacy guidelines issued by the Federal Financial Institutions Examination Council, or the FFIEC. These guidelines make regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations and consider off-balance sheet exposures in determining capital adequacy. Under the rules and regulations of the FFIEC, at least half of a banks total capital is required to be Tier I
capital, comprised of common equity, retained earnings and a limited amount of non-cumulative perpetual preferred stock. The remaining capital, Tier II capital, may consist of other preferred stock, certain hybrid debt/equity instruments, a limited
amount of term-subordinated debt, or a limited amount of the reserve for possible credit losses. The FFIEC has also adopted minimum leverage ratios for banks, which are calculated by dividing Tier I capital by total average assets. Recognizing that
the risk-based capital standards address only credit risk, and not interest rate, liquidity, operational, or other risks, many banks are expected to maintain capital in excess of the minimum standards.

In addition, pursuant to provisions of the FDIC Improvement Act of 1991, or FDICIA, and related regulations with respect to prompt corrective action,
FDIC-insured institutions such as Medallion Bank may only accept brokered deposits without FDIC permission if they meet specified capital standards, and are subject to restrictions with respect to the interest they may pay on deposits unless they
are well-capitalized. To be well-capitalized under the prompt corrective action provisions, a bank must have a ratio of combined Tier I and Tier II capital to risk-weighted assets of not less than 10%, Tier I capital to risk-weighted assets of not
less than 6%, and a Tier I to average assets of not less than 5%.

We, the FDIC, and Medallion Bank have agreed that the capital levels of
Medallion Bank will at all times meet or exceed the levels required for Medallion Bank to be considered well-capitalized under the FDIC rules and regulations, that Medallion Banks Tier I capital to total assets ratio will be maintained at not
less than 15%, and that Medallion Bank will maintain an adequate allowance for loan and lease losses.

Sections 23A and 23B of the Federal
Reserve Act and applicable regulations also impose restrictions on Medallion Bank. These restrictions limit the transfer of funds by a depository institution to certain of its affiliates, including us, in the form of loans, extensions of credit,
investments, or purchases of assets. Sections 23A and 23B also require generally that the depository institutions transactions with its affiliates be on terms no less favorable to Medallion Bank than comparable transactions with unrelated
third parties.

The USA Patriot Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, or the
Patriot Act, was enacted on October 26, 2001, and is intended to detect and prosecute terrorism and international money laundering. The Patriot Act establishes new standards for verifying customer identification incidental to the opening of new
accounts. Medallion Bank has undertaken appropriate measures to comply with the Patriot Act and associated regulations. Other provisions of the Patriot Act provide for special information sharing procedures governing communications with the
government and other financial institutions with respect to suspected terrorists and money laundering activity, and enhancements to suspicious activity reporting, including electronic filing of suspicious activity reports over a secure filing
network.



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Other

We may also be prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the prior approval of our board of directors who are not interested persons and, in some cases, prior approval by
the SEC.

We will be periodically examined by the SEC for compliance with the 1940 Act.

We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement.
Furthermore, as a business development company, we are prohibited from protecting any director or officer against any liability to us or our shareholders arising from willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of such persons office.

We have adopted and implemented written policies and procedures reasonably
designed to prevent violation of the federal securities laws, and intend to review these policies and procedures annually for their adequacy and the effectiveness of their implementation. We have designated a chief compliance officer to be
responsible for administering our policies and procedures.

Compliance with the Sarbanes-Oxley Act of 2002 and NASDAQ Corporate Governance Regulations

The Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, imposes a wide variety of regulatory requirements on publicly-held companies
and their insiders. Many of these requirements affect us. The Sarbanes-Oxley Act has required us to review our policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the new regulations promulgated thereunder. We will
continue to monitor our compliance with all future regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we are in compliance therewith.

In addition, NASDAQ has adopted or is in the process of adopting corporate governance changes to its listing standards. We believe we are in compliance
with such corporate governance listing standards. We will continue to monitor our compliance with all future listing standards and will take actions necessary to ensure that we are in compliance therewith.

AVAILABLE INFORMATION

Our corporate website is
located at www.medallion.com. We make copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendment to those reports filed with or furnished to the SEC available to investors on or
through our website free of charge as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our SEC filings can be found in the For Investors section of our website, the address of which is
http://www.medallion.com/investors.htm. Our Code of Ethical Conduct and Insider Trading Policy can be located in the Corporate Governance section of our website at http://www.medallion.com/investors_governance.htm. These documents, as
well as our SEC filings are available in print to any stockholder who requests a copy from our Secretary.



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Relating to Our Business and
Structure

We are currently in a period of capital markets disruption and severe recession and we do not expect these conditions to
improve in the near future.

The current market conditions have materially and adversely affected the debt and equity capital markets
in the United States, which could have a negative impact on our business and operations. The U.S. capital markets have been experiencing extreme volatility and disruption for more than 12 months as evidenced by a lack of liquidity in the debt
capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. These events have contributed to worsening general
economic conditions that are materially and adversely impacting the broader financial and credit markets and reducing the availability of credit and equity capital for the markets as a whole and financial services firms in particular. We believe
that the U.S. economy has entered into a period of severe recession, and forecasts for 2009 generally call for a weakening economy in the United States, with the continuation of the economic recession and possibly an economic depression. As a
result, we believe these conditions may continue for a prolonged period of time or worsen in the future. A prolonged period of market illiquidity will continue to have an adverse effect on our business, financial condition, and results of
operations. Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us. Equity capital may be difficult to raise because, subject to
some limited exceptions, we generally are not able to issue and sell our common stock at a price below net asset value per share. In addition, the debt capital that will be available, if at all, may be at a higher cost and on less favorable terms
and conditions.



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We borrow money, which magnifies the potential for gain or loss on amounts invested, and may increase
the risk of investing in us.

Borrowings, also known as leverage, magnify the potential for gain or loss on amounts invested, and
therefore increase the risk associated with investing in us. We borrow from and issue senior debt securities to banks and other lenders, and through long-term subordinated SBA debentures. These creditors have fixed dollar claims on our assets that
are superior to the claims of our common shareholders. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged.
Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged. Similarly, any increase in our income in excess of interest payable on the borrowed
funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed. Such a decline could reduce the amount
available for common stock dividend payments.

In addition, based on current market conditions, we believe Citibank may not extend the
credit facility beyond its current maturity date in November 2009. We are actively seeking additional sources of liquidity, including sources of liquidity to repay our borrowings under the Citibank facility; however, given current market conditions,
we cannot assure you that we will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become
more favorable, or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.

As of December 31, 2008, we had approximately $462,650,000 of outstanding indebtedness, which had a weighted average borrowing cost of 4.20% at
December 31, 2008, and our wholly-owned unconsolidated portfolio companies, primarily Medallion Bank, had $366,408,000 of outstanding indebtedness at a weighted average borrowing cost of 3.85%.

Consumer lending by Medallion Bank carries a higher risk of loss and could be adversely affected by an economic downturn.

The 2004 acquisition of our consumer loan portfolio, and the subsequent commencement of lending operations in this line of business, represents an entry
into the relatively new market of consumer lending for us. Although the purchased portfolio was seasoned, and Medallion Banks management has considerable experience in originating and managing consumer loans, we cannot assure you that these
loans will perform at their historical levels as expected under Medallion Banks management.

By its nature, lending to consumers that
have blemishes on their credit reports carries with it a higher risk of loss. Although the net interest margins should be higher to compensate us for this increased risk, the current economic downturn could result in higher loss rates and lower
returns than expected, and could affect the profitability of the consumer loan portfolio.

We are dependent upon our key investment
personnel for our future success.

We depend on the diligence, skill, and network of business contacts of the investment professionals
we employ for sourcing, evaluating, negotiating, structuring, and monitoring our investments. Our future success will also depend, to a significant extent, on the continued service and coordination of our senior management team, particularly, Alvin
Murstein, our Chairman and Chief Executive Officer, Andrew M. Murstein, our President, and Larry D. Hall, our Chief Financial Officer. The departure of Messrs. Murstein or Mr. Hall, or any member of our senior management team, could have a
material adverse effect on our ability to achieve our investment objective.

We operate in a highly regulated environment which may
constrain our ability to grow our business.

The 1940 Act imposes numerous constraints on the operations of business development
companies. For example, business development companies are required to invest at least 70% of their total assets in qualifying assets, primarily securities of eligible portfolio companies (as defined under the 1940 Act), cash, cash
equivalents, US government securities, and other high quality debt investments that mature in one year or less. Our regulatory requirements may hinder our ability to take advantage of attractive investment opportunities and, as a result, achieve our
investment objective. In addition, we rely upon several exemptive orders from the SEC permitting us to consolidate our financial reporting and operate our business as presently conducted. Our failure to satisfy the conditions set forth in those
exemptive orders could result in our inability to rely upon such orders or to cause the SEC to revoke the orders which could result in material changes in our financial reporting or the way in which we conduct our business. Furthermore,



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any failure to comply with the requirements imposed on business development companies by the 1940 Act could cause the SEC to bring an enforcement action
against us. If we do not remain a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would further significantly decrease our operating flexibility.

Regulations governing our operation as a business development company will affect our ability to, and the way in which, we raise additional capital.

Our business may periodically require capital. We may acquire additional capital from the following sources:

Senior Securities and Other Indebtedness. We may issue debt securities or preferred stock, and/or borrow money from banks or other financial
institutions, which we refer to collectively as senior securities, up to the maximum amount permitted by the 1940 Act. If we issue senior securities, including debt or preferred stock, we will be exposed to additional risks, including the following:



| |  |  | Under the provisions of the 1940 Act, we are permitted, as a business development company, to issue senior securities only in amounts such that our asset coverage,
as defined in the 1940 Act, equals at least 200% after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be restricted from issuing additional debt, may be limited
in making distributions on our stock, and may be required to sell a portion of our investments and, depending on the nature of our leverage, to repay a portion of our debt at a time when such sales and/or repayments may be disadvantageous.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Any amounts that we use to service our debt or make payments on preferred stock will not be available for dividends to our common shareholders.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other instrument containing covenants restricting our
operating flexibility. Additionally, some of these securities or other indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we may be required to abide by operating and investment
guidelines that further restrict operating and financial flexibility.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We and, indirectly, our shareholders will bear the cost of issuing and servicing such securities and other indebtedness.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights, preferences, and privileges more favorable than those of
our common stock, including separate voting rights, and could delay or prevent a transaction or a change in control to the detriment of the holders of our common stock.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additional Common Stock. We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however,
sell our common stock, warrants, options, or rights to acquire our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such sale is in our best interests and that of our
shareholders, and our shareholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of our Board of Directors, closely approximates the market
value of such securities (less any distributing commission or discount). We may also make rights offerings to our shareholders at prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. If we
raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our shareholders at that time would decrease and they may experience dilution. Moreover, we
can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all.

If our primary investments are deemed not to be qualifying assets, we could be deemed to be in violation of the 1940 Act.

As a business development company, we are not permitted to acquire any assets other than qualifying assets unless, at the time of such acquisition, at least 70% of our total assets are qualifying assets. Our investment in
Medallion Bank may constitute an ineligible investment. As of December 31, 2008, up to 18% of our total assets were invested in ineligible investments.

At the end of each fiscal quarter, we may take proactive steps to prospectively preserve investment flexibility in the next quarter which is assessed against our total assets at our most recent quarter end. We can
accomplish this in many ways including purchasing US Treasury bills or other investment-grade debt securities, and closing out our position on a net cash basis subsequent to quarter end. However, if such proactive measures are ineffective and our
primary investments are deemed not to be qualifying assets, we could be deemed in violation of the 1940 Act, which could have a material effect on our business.

We will be subject to corporate-level income tax if we are unable to qualify as a RIC under Subchapter M of the Code.

To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source, and asset diversification requirements.



| |  |  | The annual distribution requirement for a RIC will be satisfied if we distribute to our shareholders on an annual basis at least 90% of our net ordinary income and
realized net short-term capital gains in excess of realized net long-term capital losses, if any. Because we use debt financing, we are subject to certain asset coverage ratio requirements under the 1940
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to
satisfy the distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The income source requirement will be satisfied if we obtain at least 90% of our income for each year from dividends, interest, gains from the sale of stock or
securities or similar sources.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year.
Failure to meet those requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, and therefore will be relatively
illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we do
not qualify as a RIC for more than two consecutive years, and then seek to requalify and elect RIC status, we would be required to recognize gain to the extent of any unrealized appreciation on our assets unless we make a special election to pay
corporate-level tax on any such unrealized appreciation recognized during the succeeding 10-year period. Absent such special election, any gain we recognize would be deemed distributed to our shareholders as a taxable distribution.

If we fail to qualify for RIC tax treatment for any reason and are subject to corporate income tax, the resulting corporate taxes could substantially
reduce our net assets, the amount of income available for distribution and the amount of our distributions. In addition, the asset coverage and distribution requirements impose significant cash flow management restrictions on us and limit our
ability to retain earnings to cover periods of loss, provide for future growth, and pay for extraordinary items. Additionally, we could fail to satisfy the requirement that a RIC derive at least 90% of its gross income from qualifying sources, with
the result that we would not qualify as a RIC. Qualification as a RIC is made on an annual basis and, although we and some of our subsidiaries have qualified in the past, we cannot assure you that we will qualify for such treatment in the future.

The Codes diversification requirements may limit our ability to expand our business.

To qualify as a RIC, not more than 25% of the value of our total assets may be invested in the securities, other than US government securities or
securities of other RICs, of any one issuer. As of December 31, 2008, our largest investment subject to this test was our investment in Medallion Bank, representing 24% of our RIC assets. No other investments were more than 5% of our RIC
assets. We will continue to monitor the levels of this and any other investment concentrations in conjunction with the diversification tests.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we will include in taxable income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the
origination of a loan or possibly in other circumstances, or contractual payment-in-kind interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such original issue discount or increases in loan
balances as a result of payment-in-kind interest will be included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we will not receive in cash.

Since, in certain cases, we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the annual
distribution requirement necessary to achieve and maintain RIC tax treatment under the Code. Accordingly, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity
capital, or reduce new investment originations for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

Our SBIC subsidiaries may be unable to meet the investment company requirements, which could result in the imposition of an entity-level tax.

Some of our subsidiaries are subject to the SBIA. Our SBIC subsidiaries that are also RICs are prohibited by the SBIA from making the
distributions necessary to qualify as a RIC. Each year, in order to comply with the SBA regulations and the RIC distribution requirements, we must request and receive a waiver of the SBAs restrictions. While the current policy of the
SBAs Office of SBIC Operations is to grant such waivers if the SBIC makes certain offsetting adjustments to its paid-in capital and surplus accounts, we cannot assure you that this will continue to be the SBAs policy or that our
subsidiaries will have adequate capital to make the required adjustments. If our subsidiaries are unable to obtain a waiver, compliance with the SBA regulations may result in loss of RIC status and a consequent imposition of an entity-level tax.



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We operate in a highly competitive market for investment opportunities.

We compete for investments with other business development companies and other investment funds as well as traditional financial services companies such
as commercial banks and credit unions. Many of our competitors are substantially larger and have considerably greater financial, technical, and marketing resources than we do. For example, some competitors may have a lower cost of funds and access
to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments. These characteristics could allow our competitors to consider a wider variety of investments,
establish more relationships, and offer better pricing and more flexible structuring than us. We may lose investment opportunities if we do not match our competitors pricing, terms, and structure. If we are forced to match our
competitors pricing, terms, and structure, we may not be able to achieve acceptable returns on our investments or may bear substantial risk of capital loss. Furthermore, many of our competitors are not subject to the regulatory restrictions
that the 1940 Act imposes on us as a business development company.

We cannot assure you that the competitive pressures we face will not
have a material adverse effect on our business, financial condition, and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time.

Changes in interest rates may affect our cost of capital and net investment income.

Because we borrow to fund our investments, a portion of our income is dependent upon the difference between the interest rate at which we borrow funds
and the interest rate at which we invest these funds. A portion of our investments, such as taxi medallion loans, will have fixed interest rates, while a portion of our borrowings will likely have floating interest rates. As a result, a significant
change in market interest rates could have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income. We may hedge against interest
rate fluctuations by using standard hedging instruments, subject to applicable legal requirements. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse
developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations. Also, we will have to rely on our counterparties to perform their
obligations under such hedges.

We depend on cash flow from our subsidiaries to make dividend payments and other distributions to our
shareholders.

We are primarily a holding company, and we derive most of our operating income and cash flow from our subsidiaries. As a
result, we rely heavily upon distributions from our subsidiaries to generate the funds necessary to make dividend payments and other distributions to our shareholders. Funds are provided to us by our subsidiaries through dividends and payments on
intercompany indebtedness, but we cannot assure you that our subsidiaries will be in a position to continue to make these dividend or debt payments. Furthermore, as a condition of its approval by its regulators, Medallion Bank is required to
maintain a 15% capital ratio, which may inhibit its ability to declare and pay dividends.

Medallion Banks use of brokered deposit
sources for its deposit-gathering activities may not be available when needed.

Medallion Bank relies on the established brokered
deposit market to originate deposits to fund its operations. While Medallion Bank has developed contractual relationships with a diversified group of investment brokers, and the brokered deposit market is well developed and utilized by many banking
institutions, conditions could change that might affect the availability of deposits. If the capital levels at Medallion Bank fall below the well-capitalized level, or if Medallion Bank experiences a period of sustained operating losses,
the cost of attracting deposits from the brokered deposit market could increase significantly, and the ability of Medallion Bank to raise deposits from this source could be impaired. Medallion Banks ability to manage its growth to stay within
the well-capitalized level, and the capital level currently required by the FDIC, which is also considerably higher than the level required to be classified as well-capitalized, is critical to Medallion Banks retaining
open access to this funding source.

A decrease in prevailing interest rates may lead to more loan prepayments, which could adversely
affect our business.

Our borrowers generally have the right to prepay their loans upon payment of a fee ranging from 30 to 120 days
interest for standard commodity loans, and for higher amounts, as negotiated, for larger more custom loan arrangements. A borrower is likely to exercise prepayment rights at a time when the interest rate payable on the borrowers loan is high
relative to prevailing interest rates. In a lower interest rate environment, we will have difficulty re-lending prepaid funds at comparable rates, which may reduce the net interest income that we receive. When this occurs, we will generally reinvest
these proceeds in temporary investments, pending their future investment in new portfolio companies. These temporary investments will typically have substantially lower yields than the debt being prepaid, and we could experience significant delays
in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was repaid. As a result, our results of operations could be materially adversely affected if a substantial number of our
portfolio companies elect to prepay amounts owed to us and we are not able to reinvest the proceeds for comparable yields in a timely fashion. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in
the market price of our common stock.



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Our investment portfolio is, and will continue to be, recorded at fair value as determined in good
faith by our management and approved by our Board of Directors and, as a result, there is, and will continue to be, uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market value, at fair value
as determined by our management and approved by our Board of Directors. Unlike other lending institutions, we are not permitted to maintain a general reserve for anticipated losses. Instead, we are required by the 1940 Act to specifically value each
individual investment and record an unrealized gain or loss for any asset we believe has increased or decreased in value. Typically, there is not a public market for most of the investments in which we have invested and will generally continue to
invest. As a result, we value our investments on a quarterly basis based on a determination of their fair value made in good faith and in accordance with the written guidelines approved by our Board of Directors. The types of factors that may be
considered in determining the fair value pricing of our investments include the nature and realizable value of any collateral, the portfolio companys earnings and its ability to make payments on its indebtedness, the markets in which the
portfolio company does business, comparison to publicly traded companies, discounted cash flow, and other relevant factors. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain,
the valuations may fluctuate over short periods of time and may be based on estimates. As a result, our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments existed. Our
net asset value could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such securities. Considering these factors, we have
determined that the fair value of our portfolio is below its cost basis. As of December 31, 2008, our net unrealized depreciation on investments other than in controlled subsidiaries and foreclosed properties was $4,678,000 or 0.81% of our
investment portfolio.

The lack of liquidity in our investments may adversely affect our business.

We generally make investments in private companies. Substantially all of these securities are subject to legal and other restrictions on resale or are
otherwise less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. In addition, if we are required to liquidate all or a portion of our portfolio
quickly, we may realize significantly less than the value at which we had previously recorded our investments. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we have material
non-public information regarding such portfolio company.

In addition, the illiquidity of our loan portfolio and investments may adversely
affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such
liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate
at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds
would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate
investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such
techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain
constant and no actions were taken to alter the existing interest rate sensitivity, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would have negatively impacted net increase in net assets
resulting from operations as of December 31, 2008 by approximately $1,702,000 on an annualized basis, compared to a positive impact of $374,000 at December 31, 2007, and the impact of such an immediate increase of 1% over a one year period
would have been ($2,831,000) at December 31, 2008, compared to ($2,895,000) for December 31, 2007. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential
changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net increase in net assets resulting from operations in a particular quarter or for the year taken as a whole.
Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.



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Based on discussions with the SEC, we have determined that we should no longer consolidate Medallion
Banks accounts with those of our own.

Since the inception of Medallion Bank, we had historically consolidated the financial
position and results of operations of Medallion Bank with those of our own. We did so in reliance upon a letter from the staff of the SEC permitting such consolidation. During August 2006, we filed the initial registration statement related to an
offering of common stock which the SEC staff reviewed and on which they provided comments, including the appropriateness of consolidating the accounts of Medallion Bank which evolved since 2004. Based on several discussions with the SEC; our
management, Audit Committee, and Board of Directors determined, and our auditors concurred, that we should no longer consolidate Medallion Bank in reliance upon the SEC letter, and determined, and our auditors concurred, that the change represented
a change in the reporting entity as described in SFAS No. 154, Accounting Changes and Error Corrections. Accordingly, we adopted the retrospective treatment provided for in that statement, including for any interim periods
presented, included in our 2006 Form 10-K. Based on the available facts, and after due investigation, we believe we relied upon the no-action letter in good faith and with a reasonable basis for such reliance and we have articulated these facts to
the SEC. After reviewing our response, the SEC indicated it has no further comments regarding the consolidation of Medallion Bank, but they have not formally concurred with our conclusion. We cannot assure you that the SEC or any other regulatory
agency may not come to a different conclusion than ours. Such a different conclusion could result in our having to restate our financial statements.

We had a material weakness in internal control over financial reporting.

Management identified a
material weakness in our internal control over financial reporting for the year ended December 31, 2006 relating to the documentation and oversight of the monitoring of certain of the loans and/or investments included in the portfolio of one of
our subsidiaries, Medallion Capital, which was remediated during 2007. Although we believe that the consolidated financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of
operations and cash flows for the periods presented in conformity with GAAP, we cannot assure you that material weaknesses in our internal control over financial reporting will not be identified in the future that could cause us to fail to meet our
periodic reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor reports regarding the effectiveness of our
internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated under Section 404.

We may experience fluctuations in our quarterly results.

We could experience fluctuations in our
quarterly operating results due to a number of factors, including our ability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in
and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, and general economic conditions. As a result of these factors, results for any period should not be relied
upon as being indicative of performance in future periods.

Terrorist attacks and other acts of violence or war may affect any market
for our common stock, impact the businesses in which we invest, and harm our operations and profitability.

Terrorist attacks may harm
our results of operations and your investment. We cannot assure you that there will not be further terrorist attacks against the US or US businesses. Such attacks or armed conflicts in the US or elsewhere may impact the businesses in which we invest
directly, or indirectly by undermining economic conditions in the United States. In addition, a substantial portion of our business is focused in the New York City metropolitan area, which suffered a terrorist attack in 2001. Another terrorist
attack in New York City could severely impact our results of operations. Losses resulting from terrorist attacks are generally uninsurable.

Our financial condition and results of operations will depend on our ability to manage growth effectively.

Our ability to
achieve our investment objective will depend on our ability to grow, which will depend, in turn, on our management teams ability to identify, evaluate, and monitor, and our ability to finance and invest in, companies that meet our investment
criteria.

Accomplishing this result on a cost-effective basis will be largely a function of our management teams handling of the
investment process, its ability to provide competent, attentive, and efficient services, and our access to financing on acceptable terms. In addition to monitoring the performance of our existing investments, members of our management team and our
investment professionals may also be called upon to provide managerial assistance to our portfolio companies. These demands on their time may distract them or slow the rate of investment. In order to grow, we will need to hire, train, supervise, and
manage new employees. However, we cannot assure you that any such employees will contribute to the success of our business. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial
condition, and results of operations.



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Acquisitions may lead to difficulties that could adversely affect our operations.

By their nature, corporate acquisitions entail certain risks, including those relating to undisclosed liabilities, the entry into new markets,
operational, and personnel matters. We may have difficulty integrating acquired operations or managing problems due to sudden increases in the size of our loan portfolio. In such instances, we might be required to modify our operating systems and
procedures, hire additional staff, obtain and integrate new equipment, and complete other tasks appropriate for the assimilation of new business activities. We cannot assure you that we would be successful, if and when necessary, in minimizing these
inherent risks or in establishing systems and procedures which will enable us to effectively achieve our desired results in respect of any future acquisitions.

Our ability to enter into transactions with our affiliates is restricted.

The 1940 Act restricts
our ability to knowingly participate in certain transactions with our affiliates. These restrictions limit our ability to buy or sell any security from or to our affiliates, or engage in joint transactions with our affiliates, which
could include investments in the same portfolio company (whether at the same or different times). With respect to controlling or certain closely affiliated persons, we will generally be prohibited from engaging in such transactions absent the prior
approval of the SEC. With respect to other affiliated persons, we may engage in such transactions only with the prior approval of our independent directors.

Our Board of Directors may change our operating policies and strategies without prior notice or shareholder approval, the effects of which may be adverse.

Our Board of Directors has the authority to modify or waive our current operating policies and strategies without prior notice and without shareholder
approval. We cannot predict the effect any changes to our current operating policies and strategies would have on our business, operating results, and value of our stock. However, the effects might be adverse, which could negatively impact our
ability to pay you dividends and cause you to lose all or part of your investment.

Risks Relating to Our Investments

Lending to small businesses involves a high degree of risk and is highly speculative.

Lending to small businesses involves a high degree of business and financial risk, which can result in substantial losses and should be considered
speculative. Our borrower base consists primarily of small business owners that may have limited resources and that are generally unable to obtain financing from traditional sources. There is generally no publicly available information about these
small business owners, and we must rely on the diligence of our employees and agents to obtain information in connection with our credit decisions. In addition, these small businesses often do not have audited financial statements. Some smaller
businesses have narrower product lines and market shares than their competition. Therefore, they may be more vulnerable to customer preferences, market conditions, or economic downturns, which may adversely affect the return on, or the recovery of,
our investment in these businesses.

Our portfolio is and may continue to be concentrated in a limited number of portfolio companies and
industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations to us or by a downturn in the particular industry.

Our portfolio is and may continue to be concentrated in a limited number of portfolio companies and industries. As of December 31, 2008, investments
in New York City taxi medallion loans represented approximately 74% of our managed taxi medallion loans. Beyond the asset diversification requirements associated with our qualification as a RIC, we do not have fixed guidelines for diversification,
and while we are not targeting any specific industries, our investments are, and could continue to be, concentrated in relatively few industries. As a result, the aggregate returns we realize may be adversely affected if a small number of
investments perform poorly or if we need to write down the value of any one investment. Additionally, a downturn in any particular industry in which we are invested could also negatively impact the aggregate returns we realize.

If we are unable to continue to diversify geographically, our business may be adversely affected if the New York City taxicab industry experiences a
sustained economic downturn.

A significant portion of our loan revenue is derived from New York City medallion loans collateralized by
New York City taxicab medallions. An economic downturn in the New York City taxicab industry could lead to an increase in defaults on our medallion loans. We cannot assure you that we will be able to sufficiently diversify our operations
geographically.



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An economic downturn such as what we are currently experiencing could result in certain of our commercial
and consumer loan customers experiencing declines in business activities and/or personal resources, which could lead to difficulties in their servicing of their loans with us, and increasing the level of delinquencies, defaults, and loan losses in
our commercial and consumer loan portfolios.

Changes in taxicab industry regulations that result in the issuance of additional
medallions or increases the expenses involved in operating a medallion could lead to a decrease in the value of our medallion loan collateral.

Every city in which we originate medallion loans, and most other major cities in the US, limits the supply of taxicab medallions. This regulation results in supply restrictions that support the value of medallions. Actions that loosen these
restrictions and result in the issuance of additional medallions into a market could decrease the value of medallions in that market. If this were to occur, the value of the collateral securing our then outstanding medallion loans in that market
could be adversely affected. We are unable to forecast with any degree of certainty whether any other potential increases in the supply of medallions will occur.

In New York City, Chicago, Boston, and in other markets where we originate medallion loans, taxicab fares are generally set by government agencies. Expenses associated with operating taxicabs are largely unregulated.
As a result, the ability of taxicab operators to recoup increases in expenses is limited in the short term. Escalating expenses can render taxicab operations less profitable, could cause borrowers to default on loans from us, and could potentially
adversely affect the value of our collateral.

A significant portion of our loan revenue is derived from loans collateralized by New York
City taxicab medallions. According to New York City TLC data, over the past 20 years New York City taxicab medallions have appreciated in value from under $100,000 to $747,000 for corporate medallions and over $550,000 for individual medallions.
However, for sustained periods during that time, taxicab medallions have declined in value. Since December 31, 2006, the value of New York City taxicab medallions increased by approximately 34% for individual medallions and 42% for corporate
medallions.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We invest primarily in senior secured loans, junior secured loans, and subordinated debt issued by small- to mid-sized companies. Our
portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on
or before the dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company, holders of
debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such senior creditors, such portfolio company may not have any
remaining assets to use for repaying its obligation to us. In the case of debt ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event
of an insolvency, liquidation, dissolution, reorganization, or bankruptcy of the relevant portfolio company.

There may be circumstances
where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.

Even
though we may have structured most of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that
portfolio company, a bankruptcy court might recharacterize our debt investment and subordinate all or a portion of our claim to that of other creditors. We may also be subject to lender liability claims for actions taken by us with respect to a
borrowers business or instances where we exercise control over the borrower. It is possible that we could become subject to a lenders liability claim, including as a result of actions taken in rendering significant managerial assistance.

We may not control many of our portfolio companies.

We may not control many of our portfolio companies, even though we may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are
subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree, and the management of such company may take risks or otherwise act in ways that do not serve our interests as debt investors.

We may not realize gains from our equity investments.

Certain investments that we have made in the past and may make in the future include warrants or other equity securities. In addition, we may from time
to time make non-control, equity co-investments in companies in conjunction with private equity sponsors. Our goal is ultimately to realize gains upon our disposition of such equity interests. However, the equity interests we receive may not
appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other
losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity
interests.



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Our investments in special purpose acquisition companies, or SPACs, may be subject to forfeit.

The initial public offering of units in our first SPAC, Sports Properties Acquisition Corp., (Sports Properties) was consummated in
January, 2008. Sports Properties has 24 months from the date of its prospectus to complete a business combination. If Sports Properties fails to consummate a business combination within the required time frame, its corporate existence will cease
except for the purposes of winding up its affairs and liquidating its assets. We own shares of the common stock of Sports Properties that were issued prior to Sports Properties offering, but we have waived our right to receive distributions
with respect to those shares upon the liquidation of Sports Properties. Additionally, we have purchased warrants directly from Sports Properties in a private placement prior to the effective date of Sports Properties prospectus. Upon
consummation of Sports Properties offering, we owned 18% of Sports Properties issued and outstanding common stock. If Sports Properties does not consummate a business combination within the required time frame, we will not receive a
return on our investment and we will lose our investment of $6,567,000.

We also agreed to indemnify Sports Properties upon Sports
Properties liquidation for all claims of any vendors, service providers, or other entities that are owed money by Sports Properties for services rendered, or contracted for, or products sold to Sports Properties, or the claims of any target
businesses to the extent that Sports Properties fails to obtain valid and enforceable waivers from such vendors, service providers, prospective target businesses, or other entities in order to protect the amounts held in Sports Properties
trust account. In the event of a liquidation of Sports Properties, we may not only lose the amount of capital we invested in Sports Properties, but we may also be liable to Sports Properties under those indemnification obligations.

We have formed a second SPAC, National Security Solutions Inc., (National Security) that is currently in registration and that will seek a business
combination in the homeland defense and security industries. If the offering of units of National Security is successful, our investment in National Security will be subject to similar forfeiture risk if it does not consummate a business
combination. In addition, we will provide a similar indemnity to protect the amounts held in National Securitys trust account.

We
have paid expenses relating to the SPACs for which we will not be reimbursed.

Pursuant to a consulting agreement between us and
ProEminent Sports, LLC, Tony Tavares acts as a consultant to us for sports related investments and, included within the scope of his duties, is his service to Sports Properties. Pursuant to the consulting agreement, Mr. Tavares has, among other
things, agreed to serve as Chief Executive Officer of Sports Properties, help it identify a target business, perform due diligence on the proposed target, and negotiate and consummate a business combination with such a target business. Following a
business combination, in the event Mr. Tavares is not offered employment or a board position with Sports Properties, we have agreed to continue the consulting arrangement for at least an additional twelve months. For the services rendered by
ProEminent Sports, LLC to us, we pay ProEminent Sports a monthly fee of $20,000. Sports Properties advisors, Robert Caporale and Randel E. Vataha, are Chairman and President, respectively, and each own 50% of, the membership interests of Game
Plan LLC. We were also a party to an agreement with Game Plan LLC which was terminated as of June 1, 2008 pursuant to which Game Plan LLC provided certain consulting services to us and to Sports Properties, including advising in identifying a
target business. For the services rendered by Game Plan to us, we paid Game Plan a monthly fee of $10,000. The fees paid by us pursuant to the consulting agreements are solely borne by us and were not reimbursed by Sports Properties. We are also a
party to an agreement with Graidan Ventures LLC, which was amended as of June 1, 2008, when Sports Properties entered into its own agreement with Graidan Ventures. Under the prior agreement, the principal of Graidan Ventures provides us with
general consulting, managerial, and investment banking advice relating to our investments in both SPACs and other investment opportunities. For these services, we paid Graidan Ventures a monthly fee of $18,750. Under the amended and restated
agreement, Graidan Ventures provides us with general consulting, managerial, and investment banking advice related to our investment in National Security and other investment opportunities for these services, we pay Graidan Ventures a monthly fee of
$3,750.

Pursuant to letter agreements which the founding stockholders entered into with Sports Properties and the underwriters, the
founding stockholders waived their rights to receive distributions with respect to their founding shares should Sports Properties be liquidated.

In the event of liquidation, Sports Properties will pay the costs of liquidation from the remaining assets outside of the Trust Account. To the extent such funds are not available, Medallion has agreed to provide Sports Properties the
necessary funds (currently anticipated to be no more than approximately $50,000 in the event that Sports Properties corporate existence ceases by operation of law), and has agreed not to seek repayment for such expenses.



27



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If the SPACs are successful in consummating a business combination, we will face restrictions limiting
our ability to liquidate our common stock in such SPAC.

The privately issued shares and warrants of Sports Properties were placed in
escrow and will not be released to us before one year from the business combination, except in very limited circumstances. In addition, the privately issued shares and warrants will become freely tradable only after they are registered pursuant to
an effective registration statement. We have further agreed that we will not sell or transfer any shares of Sports Properties common stock purchased by us pursuant to our limit order agreement with Banc of America Securities LLC until 180 days
after Sports Properties has completed a business combination. If the offering of units of National Security is successful, we will face similar restrictions limiting our ability to liquidate our common stock.

Our executive officers and directors may allocate some portion of their time to the business of the SPACs, which may create conflicts of interest.

Our investment in Sports Properties may create conflicts of interest. Andrew M. Murstein, our President and a director, serves
as the Vice Chairman and Secretary of Sports Properties. Larry D. Hall, our Chief Financial Officer, serves as the Chief Financial Officer of Sports Properties. Henry L. Aaron, Mario M. Cuomo, and Stanley Kreitman serve as our directors and as
directors of Sports Properties. Messrs. Murstein, Hall, Aaron, and Cuomo entered into an agreement with Sports Properties and with Sports Properties underwriter(s) whereby they agreed, and Mr. Kreitman is anticipated to enter into an
agreement with Sports Properties whereby he will agree, to present to Sports Properties, prior to presentation to any other person or entity, opportunities to acquire entities, until the earlier of Sports Properties consummation of a business
combination, liquidation, or until such time as they cease to be an officer or director of Sports Properties, subject to any pre-existing fiduciary or contractual obligation they have. We also entered into an agreement with Sports Properties and
with Sports Properties underwriter(s) whereby we agreed to present to Sports Properties, prior to our own consideration or presentation to any other person or entity, opportunities to acquire entities in the sports, leisure, or entertainment
industries that, in our reasonable discretion, have a value equal to or exceeding 80% of Sports Properties total assets held in trust, which are currently estimated at approximately $215,201,000, at the time that we become aware of such
opportunity. Andrew Murstein has agreed to serve as Vice Chairman, Executive Vice President, and Secretary of National Security. Larry D. Hall has agreed to serve as Chief Financial Officer of National Security. Stanley Kreitman, Frederick Menowitz,
David Rudnick, and Lowell Weicker serve as our directors and have agreed to serve as directors of National Security. If the offering of units of National Security is successful, our executive officers and directors are anticipated to enter into
similar agreements with National Security, as are we, with respect to opportunities in the homeland defense and security industries.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

We lease approximately 17,000 square
feet of office space in New York City for our corporate headquarters under a lease expiring in June 2016, and lease a facility in Long Island City, New York, of approximately 6,000 square feet for certain corporate back-office operations. We also
lease office space for loan origination offices and subsidiaries operations in Boston, MA, Chicago, IL, Minneapolis, MN, and Flemington, NJ. Medallion Bank leases space in Salt Lake City, UT. We do not own any real property, other than foreclosed
property obtained as a result of lending relationships. We believe that our leased properties, taken as a whole, are in good operating condition and are suitable for our current business operations.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

The Company and its subsidiaries
are currently involved in various legal proceedings incident to the ordinary course of its business, including collection matters with respect to certain loans. The Company intends to vigorously defend any outstanding claims and pursue its legal
rights. In the opinion of the Companys management and based upon the advice of legal counsel, there is no proceeding pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material
adverse effect on the Companys results of operations or financial condition.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

No matters were submitted to a vote of security holders during the 2008 fourth quarter.



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PART II



|ITEM 5. | MARKET FOR THE REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASE OF EQUITY SECURITIES
|------- | ---------------------------------------------------------------------------------------------------------------

Our common stock is quoted on the Nasdaq Global Select Market under the symbol TAXI. Our common stock commenced trading on May 23, 1996.
As of March 11, 2009, there were approximately 126 holders of record of the Companys common stock.

On March 11, 2009, the last
reported sale price of our common stock was $4.55 per share. Historically, our common stock has traded at a premium to net asset value per share, but there can be no assurance that our stock will trade at a premium in the future.

The following table sets forth, for the periods indicated, the range of high and low closing prices for our common stock on the Nasdaq Global Select
Market.



|               |  |                   |      |      |   |       |  |   |      
|-------------- |  | ----------------- | ---- | ---- | - | ----- |  | - | -----
|2008           |  | DIVIDENDSDECLARED |      | HIGH |   | LOW  
|Fourth Quarter |  | $                 | 0.19 |      | $ | 9.84  |  | $ | 5.58 
|Third Quarter  |  |                   | 0.19 |      |   | 10.66 |  |   | 8.96 
|Second Quarter |  |                   | 0.19 |      |   | 10.04 |  |   | 8.31 
|First Quarter  |  |                   | 0.19 |      |   | 10.33 |  |   | 9.04 
|               |  |                   |     
|2007           |  |                   |      |      |   |      
|Fourth Quarter |  | $                 | 0.19 |      | $ | 11.00 |  | $ | 9.70 
|Third Quarter  |  |                   | 0.19 |      |   | 12.00 |  |   | 10.39
|Second Quarter |  |                   | 0.19 |      |   | 12.43 |  |   | 11.15
|First Quarter  |  |                   | 0.19 |      |   | 12.34 |  |   | 10.80

Information about our equity compensation plan is incorporated by reference in all information
under the caption Equity Compensation Plan Information included in our definitive Proxy Statement for the Annual Meeting of Stockholders to be held on June 5, 2009.

As a RIC, we intend to distribute at least 90% of our investment company taxable income to our shareholders. Distributions of our income are generally
required to be made within the calendar year the income was earned as a RIC; however, in certain circumstances distributions can be made up to a full calendar year after the income has been earned. Investment company taxable income includes, among
other things, interest, dividends, and capital gains reduced by deductible expenses. Our ability to make dividend payments as a RIC is restricted by certain asset coverage requirements under the 1940 Act and has been dependent upon maintenance of
our status as a RIC under the Code in the past, by SBA regulations, and under the terms of the SBA debentures. There can be no assurances, however, that we will have sufficient earnings to pay such dividends in the future.

We have adopted a dividend reinvestment plan pursuant to which shareholders may elect to have distributions reinvested in additional shares of common
stock. When we declare a dividend or distribution, all participants will have credited to their plan accounts the number of full and fractional shares (computed to three decimal places) that could be obtained with the cash, net of any applicable
withholding taxes that would have been paid to them if they were not participants. The number of full and fractional shares is computed at the weighted average price of all shares of common stock purchased for plan participants within the 30 days
after the dividend or distribution is declared plus brokerage commissions. The automatic reinvestment of dividends and capital gains distributions will not release plan participants of any income tax that may be payable on the dividend or capital
gains distribution. Shareholders may terminate their participation in the dividend reinvestment plan by providing written notice to the Plan Agent at least 10 days before any given dividend payment date. Upon termination, we will issue to a
shareholder both a certificate for the number of full shares of common stock owned and a check for any fractional shares, valued at the then current market price, less any applicable brokerage commissions and any other costs of sale. There are no
additional fees or expenses for participation in the dividend reinvestment plan. Shareholders may obtain additional information about the dividend reinvestment plan by contacting the American Stock Transfer & Trust Company at 59 Maiden
Lane, New York, NY, 10038.



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##### Table of Contents

ISSUER PURCHASES OF EQUITY SECURITIES(1)



|                                     |  |                                |  |                             |      |                                                                            |           |                                                                                                     |   |           
|------------------------------------ |  | ------------------------------ |  | --------------------------- | ---- | -------------------------------------------------------------------------- | --------- | --------------------------------------------------------------------------------------------------- | - | ----------
|Period                               |  | Total Numberof SharesPurchased |  | Average PricePaid per Share |      | Total Numberof SharesPurchased asPart of PubliclyAnnouncedPlans
orPrograms |           | MaximumNumber ofShares (orApproximateDollar Value)that May YetBe PurchasedUnder thePlans
orPrograms
|November 5 through December 31, 2003 |  | 10,816                         |  | $                           | 9.20 |                                                                            | 10,816    |                                                                                                     | $ | 9,900,492 
|January 1 through December 31, 2004  |  | 952,517                        |  |                             | 9.00 |                                                                            | 952,517   |                                                                                                     |   | 11,329,294
|January 1 through December 31, 2005  |  | 389,900                        |  |                             | 9.26 |                                                                            | 389,900   |                                                                                                     |   | 7,720,523 
|January 1 through December 31, 2006  |  |                               |  |                             |     |                                                                            |          |                                                                                                     |   | 7,720,523 
|January 1 through December 31, 2007  |  | 33,200                         |  |                             | 9.84 |                                                                            | 33,200    |                                                                                                     |   | 7,393,708 
|January 1 through December 31, 2008  |  | 7,691                          |  |                             | 9.66 |                                                                            | 7,691     |                                                                                                     |   | 7,319,397 
|                                     |  |                                |  |                             |      |                                                                            |           |                                                                                                     |   |           
|Total                                |  | 1,394,124                      |  |                             | 9.10 |                                                                            | 1,394,124 |                                                                                                     |   |          
|                                     |  |                                |  |                             |      |                                                                            |           |                                                                                                     |   |           



|(1) | We publicly announced our Stock Repurchase Program in a press release dated November 5, 2003, after the Board of Directors approved the repurchase of up to $10,000,000 of our
outstanding common stock, which was increased by an additional $10,000,000 authorization on November 3, 2004. The stock repurchase program expires 180 days after the commencement of the purchases. If we have not repurchased the additional
$10,000,000 of common stock by the end of such period, we are permitted to extend the stock repurchased program for additional 180-day periods until we have repurchased the total amount authorized. In April 2008, we extended the terms of the Stock
Repurchase Program. Purchases were to commence no earlier than May 2008, and were to conclude 180 days after the commencement of the purchases, and which was further extended in October, 2008 for similar terms and conditions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

Summary Consolidated
Financial Data

You should read the consolidated financial information below with the Consolidated Financial Statements and Notes
thereto for the years ended December 31, 2008, 2007, 2006, 2005, and 2004. Because of the change in the reporting entity described in note 3 to our consolidated financial statements, our financial condition and results of operations included in
this annual report for the years ended December 31, 2006, 2005, and 2004, including for any interim periods presented, have been adjusted to reflect the change retrospectively for all periods and information presented.



|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                                            |  | Year ended December 31, |           
|(Dollars in thousands, except per share data)                                                               |  | 2008                    |            |   | 2007 |   |            | 2006 |  |   | 2005       |   |  | 2004 |           
|Statement of operations                                                                                     |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Investment income                                                                                           |  | $                       | 52,284     |   |      | $ | 51,393     |      |  | $ | 39,635     |   |  | $    | 34,811     |   |  | $ | 24,833     |  
|Interest expense                                                                                            |  |                         | 23,711     |   |      |   | 30,704     |      |  |   | 24,190     |   |  |      | 17,997     |   |  |   | 12,834     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net interest income                                                                                         |  |                         | 28,573     |   |      |   | 20,689     |      |  |   | 15,445     |   |  |      | 16,814     |   |  |   | 11,999     |  
|Noninterest income                                                                                          |  |                         | 3,837      |   |      |   | 2,444      |      |  |   | 2,646      |   |  |      | 4,738      |   |  |   | 4,334      |  
|Operating expenses                                                                                          |  |                         | 17,320     |   |      |   | 17,835     |      |  |   | 14,926     |   |  |      | 16,984     |   |  |   | 16,083     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income before income taxes                                                                   |  |                         | 15,090     |   |      |   | 5,298      |      |  |   | 3,165      |   |  |      | 4,568      |   |  |   | 250        |  
|Income tax (provision) benefit                                                                              |  |                         |           |   |      |   |           |      |  |   |           |   |  |      | 14         |   |  |   | (259       | )
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income (loss) after income taxes                                                             |  |                         | 15,090     |   |      |   | 5,298      |      |  |   | 3,165      |   |  |      | 4,582      |   |  |   | (9         | )
|Net realized gains (losses) on investments                                                                  |  |                         | (3,746     | ) |      |   | 14,172     |      |  |   | 3,080      |   |  |      | 3,606      |   |  |   | 2,329      |  
|Net change in unrealized appreciation (depreciation) on Medallion Bank and other controlled subsidiaries(1) |  |                         | (2,419     | ) |      |   | 2,292      |      |  |   | 7,454      |   |  |      | 5,012      |   |  |   | 343        |  
|Net change in unrealized appreciation (depreciation) on investments(1)                                      |  |                         | 6,323      |   |      |   | (6,326     | )    |  |   | (591       | ) |  |      | (6,339     | ) |  |   | 19,849     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net increase in net assets resulting from operations                                                        |  | $                       | 15,248     |   |      | $ | 15,436     |      |  | $ | 13,108     |   |  | $    | 6,861      |   |  | $ | 22,512     |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Per share data                                                                                              |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income                                                                                       |  | $                       | 0.85       |   |      | $ | 0.30       |      |  | $ | 0.18       |   |  | $    | 0.26       |   |  | $ | 0.01       |  
|Income tax (provision) benefit                                                                              |  |                         |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   | (0.01      | )
|Net realized gains (losses) on investments                                                                  |  |                         | (0.21      | ) |      |   | 0.80       |      |  |   | 0.17       |   |  |      | 0.21       |   |  |   | 0.13       |  
|Net change in unrealized appreciation (depreciation) on investments(1)                                      |  |                         | 0.22       |   |      |   | (0.23      | )    |  |   | 0.39       |   |  |      | (0.08      | ) |  |   | 1.09       |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net increase in net assets resulting from operations                                                        |  | $                       | 0.86       |   |      | $ | 0.87       |      |  | $ | 0.74       |   |  | $    | 0.39       |   |  | $ | 1.22       |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Dividends declared per share                                                                                |  | $                       | 0.76       |   |      | $ | 0.76       |      |  | $ | 0.70       |   |  | $    | 0.54       |   |  | $ | 0.37       |  
|                                                                                                            |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Weighted average common shares outstanding                                                                  |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Basic                                                                                                       |  |                         | 17,520,966 |   |      |   | 17,480,523 |      |  |   | 17,293,665 |   |  |      | 17,087,034 |   |  |   | 18,001,604 |  
|Diluted                                                                                                     |  |                         | 17,722,575 |   |      |   | 17,786,310 |      |  |   | 17,761,039 |   |  |      | 17,552,228 |   |  |   | 18,424,518 |  
|Balance sheet data                                                                                          |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investments                                                                                             |  | $                       | 570,597    |   |      | $ | 653,046    |      |  | $ | 592,933    |   |  | $    | 530,222    |   |  | $ | 481,081    |  
|Total assets                                                                                                |  |                         | 646,685    |   |      |   | 721,262    |      |  |   | 631,605    |   |  |      | 573,355    |   |  |   | 522,090    |  
|Total funds borrowed                                                                                        |  |                         | 462,650    |   |      |   | 542,549    |      |  |   | 455,137    |   |  |      | 400,915    |   |  |   | 339,395    |  
|Total liabilities                                                                                           |  |                         | 471,739    |   |      |   | 548,839    |      |  |   | 461,977    |   |  |      | 407,000    |   |  |   | 351,629    |  
|Total shareholders equity                                                                                  |  |                         | 174,946    |   |      |   | 172,423    |      |  |   | 169,628    |   |  |      | 166,354    |   |  |   | 170,461    |  
|Managed balance sheet data (2)                                                                              |  |                         |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investments                                                                                             |  | $                       | 922,007    |   |      | $ | 934,955    |      |  | $ | 833,639    |   |  | $    | 723,253    |   |  | $ | 643,541    |  
|Total assets                                                                                                |  |                         | 1,018,114  |   |      |   | 1,025,633  |      |  |   | 893,588    |   |  |      | 792,973    |   |  |   | 709,910    |  
|Total funds borrowed                                                                                        |  |                         | 829,058    |   |      |   | 841,632    |      |  |   | 716,620    |   |  |      | 620,022    |   |  |   | 525,933    |  
|Total liabilities                                                                                           |  |                         | 843,168    |   |      |   | 853,211    |      |  |   | 723,960    |   |  |      | 626,619    |   |  |   | 539,448    |  



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|                                                     |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|---------------------------------------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | - |  | ---- | - |  | ----- | --
|                                                     |  | Year ended December 31, |  
|                                                     |  | 2008                    |   |  | 2007 |   |  | 2006 |   |  | 2005 |   |  | 2004  |   
|Selected financial ratios and other data             |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|Return on average assets (ROA) (3)                   |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|Net investment income (loss) after taxes             |  | 2.27                    | % |  | 0.79 | % |  | 0.53 | % |  | 0.82 | % |  | (0.00 | %)
|Net increase in net assets resulting from operations |  | 2.29                    |   |  | 2.30 |   |  | 2.20 |   |  | 1.23 |   |  | 4.96  |   
|Return on average equity (ROE) (4)                   |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|Net investment income (loss) after taxes             |  | 8.67                    |   |  | 3.09 |   |  | 1.89 |   |  | 2.73 |   |  | (0.01 | ) 
|Net increase in net assets resulting from operations |  | 8.76                    |   |  | 9.00 |   |  | 7.82 |   |  | 4.09 |   |  | 13.82 |   
|Weighted average yield                               |  | 8.58                    | % |  | 8.44 | % |  | 7.71 | % |  | 7.15 | % |  | 6.32  | % 
|Weighted average cost of funds                       |  | 3.89                    |   |  | 5.04 |   |  | 4.70 |   |  | 3.75 |   |  | 3.33  |   
|                                                     |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|Net interest margin(5)                               |  | 4.69                    |   |  | 3.40 |   |  | 3.01 |   |  | 3.40 |   |  | 2.99  |   
|                                                     |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|Noninterest income ratio(6)                          |  | 0.63                    |   |  | 0.40 |   |  | 0.52 |   |  | 0.99 |   |  | 1.13  |   
|Total expense ratio(7)                               |  | 6.74                    |   |  | 7.98 |   |  | 7.62 |   |  | 7.28 |   |  | 7.57  |   
|Operating expense ratio(8)                           |  | 2.84                    |   |  | 2.93 |   |  | 2.91 |   |  | 3.54 |   |  | 4.17  |   
|As a percentage of net investment portfolio          |  |                         |   |  |      |   |  |      |   |  |      |   |  |       |   
|Medallion loans                                      |  | 70                      | % |  | 76   | % |  | 72   | % |  | 71   | % |  | 65    | % 
|Commercial loans                                     |  | 16                      |   |  | 14   |   |  | 15   |   |  | 17   |   |  | 21    |   
|Investment in subsidiaries                           |  | 13                      |   |  | 9    |   |  | 8    |   |  | 8    |   |  | 7     |   
|Equity investments                                   |  | 1                       |   |  | 1    |   |  | 3    |   |  | 4    |   |  | 7     |   
|Investment securities                                |  |                        |   |  |     |   |  | 2    |   |  |     |   |  |      |   
|Investments to assets(9)                             |  | 88                      | % |  | 91   | % |  | 94   | % |  | 92   | % |  | 92    | % 
|Equity to assets(10)                                 |  | 27                      |   |  | 24   |   |  | 27   |   |  | 29   |   |  | 33    |   
|Debt to equity(11)                                   |  | 264                     |   |  | 315  |   |  | 268  |   |  | 241  |   |  | 199   |   



|(1) | Unrealized appreciation (depreciation) on investments represents the increase (decrease) for the year in the fair value of our investments, including the results of operations for
Medallion Bank, Medallion Taxi Media, and other controlled subsidiaries, where applicable.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Includes the balances of wholly-owned, unconsolidated portfolio companies, primarily Medallion Bank.
|--- | ----------------------------------------------------------------------------------------------------



|(3) | ROA represents the net investment income (loss) after taxes or net increase in net assets resulting from operations, divided by average total assets.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | ROE represents the net investment income (loss) after taxes or net increase in net assets resulting from operations, divided by average shareholders equity.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Net interest margin represents net interest income for the year divided by average interest earning assets, and included interest recoveries and bonuses of $4,471 in 2008, and $821
in 2007, $1,556 in 2006, $0 in 2005, and $0 in 2004 and also included dividends from Medallion Bank of $6,000 in 2008 and $5,750 in 2007. On a managed basis, combined with Medallion Bank, the net interest margin was 5.21%, 4.21%, 4.40%, 4.65%, and
4.37% for 2008, 2007, 2006, 2005, and 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Noninterest income ratio represents noninterest income divided by average interest earning assets.
|--- | --------------------------------------------------------------------------------------------------



|(7) | Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average interest earning assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Operating expense ratio represents operating expenses divided by average interest earning assets.
|--- | -------------------------------------------------------------------------------------------------



|(9) | Represents net investments divided by total assets as of December 31.
|--- | ---------------------------------------------------------------------



|(10) | Represents total shareholders equity divided by total assets as of December 31.
|---- | --------------------------------------------------------------------------------



|(11) | Represents total funds borrowed divided by total shareholders equity as of December 31.
|---- | ----------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The information contained in this section should be read in conjunction with the Consolidated Financial Statements and Notes thereto for the years ended
December 31, 2008, 2007, and 2006. In addition, this section contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors that could
cause actual results and conditions to differ materially from those projected in these forward-looking statements are described in the Risk Factors section on page 18.

CRITICAL ACCOUNTING POLICIES

The SEC has recently issued cautionary advice regarding disclosure
about critical accounting policies. The SEC defines critical accounting policies as those that are both most important to the portrayal of a companys financial condition and results, and that require managements most difficult,
subjective, or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain and may change materially in subsequent periods. The preparation of our consolidated financial statements requires
estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. Significant estimates made by us include valuation of loans, evaluation of the recoverability of accounts receivable and income tax
assets, and the assessment of litigation and other contingencies. The matters that give rise to such provisions are inherently uncertain and may require complex and subjective judgments. Although we believe that estimates and assumptions used in
determining the recorded amounts of net assets and liabilities at December 31, 2008 are reasonable, actual results could differ materially from the estimated amounts recorded in our financial statements.



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Change in reporting entity

Since Medallion Bank commenced operations in December 2003, we had historically consolidated Medallion Banks financial statements with those of our
own. Although Medallion Bank is not an investment company, and SEC rules generally do not permit investment companies such as ours to consolidate the financial statements of non-investment companies, such as Medallion Bank, we had sought and
obtained a letter from the SEC in March 2004 permitting such consolidation. We believed that consolidating Medallion Bank provided a more complete and accurate representation of our full scope of operations, and our complete financial position and
results of operations.

During August 2006, we filed a registration statement on Form N-2 which the SEC staff reviewed and on which they
provided comments, including those relating to the consolidation of the accounts of Medallion Bank which have evolved since 2004. Based on discussion with the SEC staff, we determined during the 2006 fourth quarter to voluntarily not consolidate
Medallion Bank and present Medallion Bank as a portfolio company. We determined that this change represents a change in the reporting entity as described in SFAS No. 154, Accounting Changes and Error Corrections. Accordingly we
retrospectively applied this change to the financial statements of all prior periods presented, including previously issued interim periods presented, included in our 2006 Form 10-K. The effect of this retrospective application was to present our
financial position and results of operations as if Medallion Bank had not been consolidated for all periods presented and to present Medallion Bank as an unconsolidated portfolio investment. Although this created changes in the reported levels of
assets, liabilities, revenues, and expenses, our net increase in net assets resulting from operations, shareholders equity, and the related amounts per common share were unchanged.

GENERAL

We are a specialty finance company that has a leading position in originating, acquiring,
and servicing loans that finance taxicab medallions and various types of commercial businesses. A wholly-owned portfolio company of ours, Medallion Bank, also originates consumer loans for the purchase of recreational vehicles, boats, motorcycles,
and trailers. Since 1996, the year in which we became a public company, we have increased our taxicab medallion loan portfolio at a compound annual growth rate of 10%, and our commercial loan portfolio at a compound annual growth rate of 7% (12% and
13% on a managed basis when combined with Medallion Bank). Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 18%.
Total assets under our management, which includes assets serviced for third party investors and managed by unconsolidated portfolio companies, were $1,075,509,000 as of December 31, 2008 and $1,017,433,000 at December 31, 2007, and have
grown at a compound annual growth rate of 14% from $215,000,000 at the end of 1996.

Our loan-related earnings depend primarily on our
level of net interest income. Net interest income is the difference between the total yield on our loan portfolio and the average cost of borrowed funds. We fund our operations through a wide variety of interest-bearing sources, such as revolving
bank facilities, bank certificates of deposit issued to customers, debentures issued to and guaranteed by the SBA, and bank term debt. Net interest income fluctuates with changes in the yield on our loan portfolio and changes in the cost of borrowed
funds, as well as changes in the amount of interest-bearing assets and interest-bearing liabilities held by us. Net interest income is also affected by economic, regulatory, and competitive factors that influence interest rates, loan demand, and the
availability of funding to finance our lending activities. We, like other financial institutions, are subject to interest rate risk to the degree that our interest-earning assets reprice on a different basis than our interest-bearing liabilities.

We also provide debt, mezzanine, and equity investment capital to companies in a variety of industries, consistent with our investment
objectives. These investments may be venture capital style investments which may not be fully collateralized. Medallion Capitals investments are typically in the form of secured debt instruments with fixed interest rates accompanied by
warrants to purchase an equity interest for a nominal exercise price (such warrants are included in equity investments on the consolidated balance sheets). Interest income is earned on the debt instruments.

We are a closed-end, non-diversified management investment company under the 1940 Act. We have elected to be treated as a business development company
under the 1940 Act. We have also elected to be treated for federal income tax purposes as a RIC under Subchapter M of the Code. As a RIC, we generally do not have to pay corporate-level federal income taxes on any net ordinary income or capital
gains that we distribute to our shareholders as dividends if we meet certain source-of-income and asset diversification requirements. Medallion Bank is not a RIC and must pay corporate-level federal income taxes.

Our wholly-owned portfolio company, Medallion Bank, is a bank regulated by the FDIC and the Utah Department of Financial Institutions which originates
taxicab medallion, commercial, and consumer loans, raises deposits, and conducts other banking activities. Medallion Bank generally provides us with our lowest cost of funds which it raises through bank certificates of deposits issued to its
customers. To take advantage of this low cost of funds, we refer a portion of our taxicab medallion and commercial loans to Medallion Bank, which then originates these loans, which are serviced by us. We earn referral and servicing fees for these
activities.



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Realized gains or losses on investments are recognized when the investments are sold or written off. The
realized gains or losses represent the difference between the proceeds received from the disposition of portfolio assets, if any, and the cost of such portfolio assets. In addition, changes in unrealized appreciation or depreciation of investments
are recorded and represent the net change in the estimated fair values of the portfolio assets at the end of the period as compared with their estimated fair values at the beginning of the period. Generally, realized gains (losses) on investments
and changes in unrealized appreciation (depreciation) on investments are inversely related. When an appreciated asset is sold to realize a gain, a decrease in the previously recorded unrealized appreciation occurs. Conversely, when a loss previously
recorded as unrealized depreciation is realized by the sale or other disposition of a depreciated portfolio asset, the reclassification of the loss from unrealized to realized causes a decrease in net unrealized depreciation and an increase in
realized loss.

Our investment in Medallion Bank, as a wholly owned portfolio investment, is also subject to quarterly assessments of fair
value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to a valuation different than recorded book value, including various regulatory restrictions that were established at Medallion
Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion Banks actual results of
operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable factors could change these
conclusions in the future.

The credit markets are undergoing a crisis which has disrupted a wide range of traditional financing sources.
The crisis has made it increasingly difficult and significantly more expensive through higher credit spreads for finance companies to obtain and renew financing. Continued turmoil in the credit markets could limit our access to funds and restrict us
from continuing our current operating strategy or implementing new operating strategies. If funds are available to us, we anticipate that our cost of funds will increase as we obtain new financing.

The credit crisis has also caused many financial institutions to record significant write-downs, mostly on their residential mortgage related assets and
structured investment vehicles and due to unsound lending practices. We are not involved in these types of transactions and always understand the importance of proper underwriting. Nonetheless, the judgments used by management in applying the
critical accounting policies discussed herein may be affected by a further and prolonged deterioration in the economic environment, which may result in changes to future financial results. Subsequent evaluations of our loan portfolio and other
investments, in light of the factors then prevailing, may result in changes to the fair value of the investments, including a decrease in the fair value. In addition, the fair value of investments in our portfolio may be negatively impacted by
illiquidity or dislocation in marketplaces resulting in depressed market prices.



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Trends in Investment Portfolio

Our investment income is driven by the principal amount of and yields on our investment portfolio. To identify trends in the balances and yields, the
following table illustrates our investments at fair value, grouped by medallion loans, commercial loans, equity investments, and investment securities, and also presents the portfolio information for Medallion Bank, at the dates indicated.



|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|------------------------------------------------------------------- |  | ----------------- | - |  | ------------------ | ------- | - | ----------------- | ----- | - | ------------------ | - | ------- | ---------------- |  | ----- | ------------------ |  | - | ------- | -
|                                                                    |  | December 31, 2008 |   |  | December 31, 2007  |         |   | December 31, 2006 |      
|(Dollars in thousands)                                              |  | InterestRate (1)  |   |  | InvestmentBalances |         |   | InterestRate (1)  |       |   | InvestmentBalances |   |         | InterestRate (1) |  |       | InvestmentBalances | 
|Medallion loans                                                     |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|New York                                                            |  | 6.04              | % |  | $                  | 304,306 |   |                   | 6.91  | % |                    | $ | 399,955 |                  |  | 6.74  | %                  |  | $ | 340,110 |  
|Boston                                                              |  | 7.54              |   |  |                    | 31,283  |   |                   | 8.44  |   |                    |   | 32,446  |                  |  | 8.12  |                    |  |   | 32,787  |  
|Chicago                                                             |  | 7.15              |   |  |                    | 28,172  |   |                   | 7.43  |   |                    |   | 33,008  |                  |  | 6.88  |                    |  |   | 31,077  |  
|Newark                                                              |  | 8.17              |   |  |                    | 27,809  |   |                   | 8.40  |   |                    |   | 22,058  |                  |  | 8.32  |                    |  |   | 10,233  |  
|Cambridge                                                           |  | 7.59              |   |  |                    | 4,387   |   |                   | 8.41  |   |                    |   | 5,174   |                  |  | 7.93  |                    |  |   | 8,184   |  
|Other                                                               |  | 7.40              |   |  |                    | 6,584   |   |                   | 7.58  |   |                    |   | 5,481   |                  |  | 7.55  |                    |  |   | 5,586   |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Total medallion loans                                               |  | 6.42              |   |  |                    | 402,541 |   |                   | 7.13  |   |                    |   | 498,122 |                  |  | 6.93  |                    |  |   | 427,977 |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Deferred loan acquisition costs                                     |  |                   |   |  |                    | 423     |   |                   |       |   |                    |   | 798     |                  |  |       |                    |  |   | 729     |  
|Unrealized depreciation on loans                                    |  |                   |   |  |                    |        |   |                   |       |   |                    |   | (37     | )                |  |       |                    |  |   | (457    | )
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Net medallion loans                                                 |  |                   |   |  | $                  | 402,964 |   |                   |       |   |                    | $ | 498,883 |                  |  |       |                    |  | $ | 428,249 |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Commercial loans                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Secured mezzanine                                                   |  | 14.23             | % |  | $                  | 65,475  |   |                   | 14.19 | % |                    | $ | 59,152  |                  |  | 13.78 | %                  |  | $ | 53,732  |  
|Asset based                                                         |  | 5.29              |   |  |                    | 13,552  |   |                   | 8.91  |   |                    |   | 19,870  |                  |  | 10.28 |                    |  |   | 18,668  |  
|Other secured commercial                                            |  | 8.34              |   |  |                    | 15,870  |   |                   | 9.05  |   |                    |   | 19,256  |                  |  | 9.59  |                    |  |   | 18,504  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Total commercial loans                                              |  | 11.97             |   |  |                    | 94,897  |   |                   | 12.12 |   |                    |   | 98,278  |                  |  | 12.21 |                    |  |   | 90,904  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Deferred loan acquisition (income) costs                            |  |                   |   |  |                    | (171    | ) |                   |       |   |                    |   | (64     | )                |  |       |                    |  |   | (98     | )
|Unrealized depreciation on loans                                    |  |                   |   |  |                    | (5,115  | ) |                   |       |   |                    |   | (6,432  | )                |  |       |                    |  |   | (2,599  | )
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Net commercial loans                                                |  |                   |   |  | $                  | 89,611  |   |                   |       |   |                    | $ | 91,782  |                  |  |       |                    |  | $ | 88,207  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Investment in Medallion Bank and other controlled subsidiaries, net |  | 8.22              | % |  | $                  | 74,750  |   |                   | 13.79 | % |                    | $ | 57,501  |                  |  | 0.00  | %                  |  | $ | 50,448  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Equity investments                                                  |  | 4.33              | % |  | $                  | 2,835   |   |                   | 4.70  | % |                    | $ | 2,138   |                  |  | 2.23  | %                  |  | $ | 13,955  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Unrealized appreciation on equities                                 |  |                   |   |  |                    | 437     |   |                   |       |   |                    |   | 2,742   |                  |  |       |                    |  |   | 2,113   |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Net equity investments                                              |  |                   |   |  | $                  | 3,272   |   |                   |       |   |                    | $ | 4,880   |                  |  |       |                    |  | $ | 16,068  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Investment securities                                               |  |                  | % |  | $                  |        |   |                   |      | % |                    | $ |        |                  |  | 5.09  | %                  |  | $ | 9,961   |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Unrealized depreciation on investment securities                    |  |                   |   |  |                    |        |   |                   |       |   |                    |   |        |                  |  |       |                    |  |   |        |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Net investment securities                                           |  |                   |   |  | $                  |        |   |                   |       |   |                    | $ |        |                  |  |       |                    |  | $ | 9,961   |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Investments at cost                                                 |  | 7.56              | % |  | $                  | 575,023 |   |                   | 8.45  | % |                    | $ | 656,039 |                  |  | 7.01  | %                  |  | $ | 593,245 |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Deferred loan acquisition costs                                     |  |                   |   |  |                    | 252     |   |                   |       |   |                    |   | 734     |                  |  |       |                    |  |   | 631     |  
|Unrealized appreciation on equities                                 |  |                   |   |  |                    | 437     |   |                   |       |   |                    |   | 2,742   |                  |  |       |                    |  |   | 2,113   |  
|Unrealized depreciation on loans                                    |  |                   |   |  |                    | (5,115  | ) |                   |       |   |                    |   | (6,469  | )                |  |       |                    |  |   | (3,056  | )
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Net investments                                                     |  |                   |   |  | $                  | 570,597 |   |                   |       |   |                    | $ | 653,046 |                  |  |       |                    |  | $ | 592,933 |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Medallion Bank investments                                          |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Consumer loans                                                      |  | 18.26             | % |  | $                  | 189,886 |   |                   | 18.54 | % |                    | $ | 139,972 |                  |  | 18.48 | %                  |  | $ | 113,777 |  
|Medallion loans                                                     |  | 6.46              |   |  |                    | 122,581 |   |                   | 6.72  |   |                    |   | 87,891  |                  |  | 6.65  |                    |  |   | 94,176  |  
|Commercial loans                                                    |  | 5.64              |   |  |                    | 87,800  |   |                   | 9.14  |   |                    |   | 88,785  |                  |  | 10.35 |                    |  |   | 60,929  |  
|Investment securities                                               |  | 4.87              |   |  |                    | 20,056  |   |                   | 4.82  |   |                    |   | 21,707  |                  |  | 4.60  |                    |  |   | 21,841  |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Medallion Bank investments at cost (2)                              |  | 11.54             |   |  |                    | 420,323 |   |                   | 12.12 |   |                    |   | 338,355 |                  |  | 11.90 |                    |  |   | 290,723 |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Deferred loan acquisition costs                                     |  |                   |   |  |                    | 5,994   |   |                   |       |   |                    |   | 4,569   |                  |  |       |                    |  |   | 3,155   |  
|Unrealized appreciation (depreciation) on investment securities     |  |                   |   |  |                    | (64     | ) |                   |       |   |                    |   | 39      |                  |  |       |                    |  |   | (402    | )
|Premiums paid on purchased securities                               |  |                   |   |  |                    | 96      |   |                   |       |   |                    |   | 91      |                  |  |       |                    |  |   | 245     |  
|Unrealized depreciation on loans                                    |  |                   |   |  |                    | (10,936 | ) |                   |       |   |                    |   | (7,311  | )                |  |       |                    |  |   | (6,057  | )
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  
|Medallion Bank net investments                                      |  |                   |   |  | $                  | 415,413 |   |                   |       |   |                    | $ | 335,743 |                  |  |       |                    |  | $ | 287,664 |  
|                                                                    |  |                   |   |  |                    |         |   |                   |       |   |                    |   |         |                  |  |       |                    |  |   |         |  



|(1) | Represents the weighted average interest or dividend rate of the respective portfolio as of the date indicated.
|--- | ---------------------------------------------------------------------------------------------------------------



|(2) | The weighted average interest rate for the entire managed loan portfolio (medallion, commercial, and consumer loans) was 9.44%, 9.57%, and 9.44% at December 31, 2008, 2007, and
2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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PORTFOLIO SUMMARY

Total Portfolio Yield

The weighted average yield of the total portfolio at December 31, 2008
was 7.56% (7.47% for the loan portfolio), a decrease of 88 basis points from 8.44% at December 31, 2007, which was an increase of 143 basis points from 7.01% at December 31, 2006. The weighted average yield of the total managed portfolio
at December 31, 2008 was 9.22% (9.44% for the loan portfolio), a decrease of 19 basis points from 9.41% at December 31, 2007, which was an increase of 37 basis points from 9.04% at December 31, 2006. The decrease from 2007 reflected
the general market condition of falling interest rates, partially offset by changes in the portfolio composition towards higher yielding commercial and equity investments. The increase from 2006 primarily reflected the market increase in interest
rates, partially offset by a higher proportion of lower-yielding medallion loans.

Medallion Loan Portfolio

Our medallion loans comprised 70% of the net portfolio of $570,597,000 at December 31, 2008, compared to 76% of $653,046,000 at December 31,
2007 and 72% of $592,933,000 at December 31, 2006. Our managed medallion loans of $525,372,000 comprised 57% of the net portfolio of $922,007,000 at December 31, 2008, compared to 63% of $934,955,000 at December 31, 2007 and 63% of
$833,639,000 at December 31, 2006. The medallion loan portfolio decreased by $95,919,000 or 19% in 2008 ($61,126,000 or 10% on a managed basis), primarily reflecting decreases in New York, Chicago and Boston. The decrease in the New York market
can be attributed to loan payoffs and the sale of participation interests to third parties. Total medallion loans serviced for third parties were $66,041,000, $4,443,000, and $5,783,000 at December 31, 2008, 2007, and 2006.

The weighted average yield of the medallion loan portfolio at December 31, 2008 was 6.42%, a decrease of 71 basis points from 7.13% at
December 31, 2007, which was an increase of 20 basis points from 6.93% at December 31, 2006. The weighted average yield of the managed medallion loan portfolio at December 31, 2008 was 6.43%, a decrease of 64 basis points from 7.07%
at December 31, 2007, which was an increase of 19 basis points from 6.88% at December 31, 2006. The change in yield primarily reflected the impact of changes in interest rates in the economy which rose from 2006 into 2007 and then fell
sharply. At December 31, 2008, 24% of the medallion loan portfolio represented loans outside New York, compared to 20% and 21% at year-end 2007 and 2006. At December 31, 2008, 26% of the managed medallion loan portfolio represented loans
outside New York, compared to 17% and 18% at year-end 2007 and 2006. We continue to focus our efforts on originating higher yielding medallion loans outside the New York market.

Commercial Loan Portfolio

Our
commercial loans represented 16% of the net investment portfolio as of December 31, 2008, compared to 14% and 15% at December 31, 2007 and 2006, and were 19%, 19%, and 18% on a managed basis. Commercial loans decreased by $2,171,000 or 2%
during 2008 (decreased by $3,404,000 or 2% on a managed basis), primarily reflecting loan participations sold. Net commercial loans serviced by third parties were $8,646,000 at December 31, 2008 and $12,643,000 at December 31, 2007,
compared to loans serviced for third parties of $7,761,000 at December 31, 2006.

The weighted average yield of the commercial loan
portfolio at December 31, 2008 was 11.97%, a decrease of 15 basis points from 12.12% at December 31, 2007, which was down 9 basis points from 12.21% at December 31, 2006. The weighted average yield of the managed commercial loan
portfolio at December 31, 2008 was 8.93%, a decrease of 177 basis points from 10.70% at December 31, 2007, which was down 76 basis points from 11.46% at December 31, 2006. The decrease in the managed portfolio reflected the greater
proportion of floating rate loans, compared to the owned portfolio with a larger concentration of high-yield, fixed rate loans. We continue to originate adjustable-rate and floating-rate loans tied to the prime rate. At December 31, 2008,
variable-rate loans represented approximately 22% of the commercial portfolio, compared to 28% and 26% at December 31, 2007 and 2006, and were 59%, 57%, and 55% on a managed basis. Although this strategy initially produces a lower yield, we
believe that this strategy mitigates interest rate risk by better matching our earning assets to their adjustable-rate funding sources.



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Consumer loan portfolios

Our managed consumer loans, all of which are held in the portfolio managed by Medallion Bank, represented 20% of the managed net investment portfolio as
of December 31, 2008, compared to 15% at December 31, 2007 and 13% at December 31, 2006. Medallion Bank started originating new adjustable rate consumer loans during the 2004 third quarter. Recreational vehicles, boats, and trailers
located in all 50 states collateralize the loans. The portfolio is serviced by a third party subsidiary of a major commercial bank.

The
weighted average gross yield of the managed consumer loan portfolio was 18.26% at December 31, 2008, compared to 18.54% and 18.48% at December 31, 2007 and 2006. Amortization of the portfolio purchase premium reduced the yield by an
average of 0.25%, 0.51%, and 0.96% in 2008, 2007, and 2006. Adjustable rate loans represented approximately 89% of the managed consumer portfolio compared to 91% and 84% at December 31, 2007 and 2006.

Delinquency and Loan Loss Experience

We generally follow a practice of discontinuing the accrual of interest income on our loans that are in arrears as to interest payments for a period of 90 days or more. We deliver a default notice and begin foreclosure and liquidation
proceedings when management determines that pursuit of these remedies is the most appropriate course of action under the circumstances. A loan is considered to be delinquent if the borrower fails to make a payment on time; however, during the course
of discussion on delinquent status, we may agree to modify the payment terms of the loan with a borrower that cannot make payments in accordance with the original loan agreement. For loan modifications, the loan will only be returned to accrual
status if all past due interest payments are brought fully current. For credit that is collateral based, we evaluate the anticipated net residual value we would receive upon foreclosure of such loans, if necessary. There can be no assurance,
however, that the collateral securing these loans will be adequate in the event of foreclosure. For credit that is cash flow-based, we assess our collateral position, and evaluate most of these relationships as ongoing businesses, expecting to
locate and install a new operator to run the business and reduce the debt.

For the consumer loan portfolio, the process to repossess the
collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off to realized losses. If the collateral is repossessed, a realized loss is recorded to write the
collateral down to 75% of its net realizable value, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off as a realized loss, and any excess
proceeds are recorded as a realized gain. Proceeds collected on charged off accounts are recorded as realized gains. All collection, repossession, and recovery efforts are handled on behalf of Medallion Bank by the servicer.

The following table shows the trend in loans 90 days or more past due as of December 31,



|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|-------------------------------------------- |  | ------ | ------ | ---- | ---- | - | ------ | ---- | ----- |  | --- | ------ |  | ---- | ------ |  | --- | -
|                                             |  | 2008   |        |      | 2007 |   |        | 2006 |      
|(Dollars in thousands)                       |  | Amount |        | %(1) |      |   | Amount |      | %(1)  |  |     | Amount |  | %(1) |       
|Medallion loans                              |  | $      | 765    |      | 0.2  | % |        | $    | 3,519 |  | 0.6 | %      |  | $    | 5,707  |  | 1.1 | %
|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|Commercial loans                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|Secured mezzanine                            |  |        | 6,415  |      | 1.3  |   |        |      | 2,819 |  | 0.5 |        |  |      | 3,459  |  | 0.7 |  
|Asset-based receivable                       |  |        |       |      | 0.0  |   |        |      |      |  | 0.0 |        |  |      |       |  | 0.0 |  
|Other secured commercial                     |  |        | 190    |      | 0.0  |   |        |      | 1,195 |  | 0.2 |        |  |      | 1,652  |  | 0.3 |  
|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|Total commercial loans                       |  |        | 6,605  |      | 1.3  |   |        |      | 4,014 |  | 0.7 |        |  |      | 5,111  |  | 1.0 |  
|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|Total loans 90 days or more past due         |  | $      | 7,370  |      | 1.5  | % |        | $    | 7,533 |  | 1.3 | %      |  | $    | 10,818 |  | 2.1 | %
|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|Total Medallion Bank loans                   |  | $      | 4,345  |      | 1.1  | % |        | $    | 1,036 |  | 0.3 | %      |  | $    | 631    |  | 0.2 | %
|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  
|Total managed loans 90 days or more past due |  | $      | 11,715 |      | 1.3  | % |        | $    | 8,569 |  | 0.9 | %      |  | $    | 11,449 |  | 1.5 | %
|                                             |  |        |        |      |      |   |        |      |       |  |     |        |  |      |        |  |     |  



|(1) | Percentages are calculated against the total or managed loan portfolio, as appropriate.
|--- | ---------------------------------------------------------------------------------------

In general, collection efforts since the establishment of our collection department have substantially contributed to the sizable reduction in overall delinquencies of medallion and other secured commercial loans.
Medallion delinquencies decreased as a result of a renegotiation and paydowns with a past due relationship. Delinquencies in secured mezzanine financing, mostly in recreational and consumer-discretionary services, increased over 2007 due to the
current state of the economy. For the same reasons, Medallion Bank also experienced higher consumer delinquencies due to bankruptcies and job losses. We are actively working with each delinquent borrower to bring them current, and believe that any
potential loss exposure is reflected in our mark-to-market estimates on each loan. Although there can be no assurances as to changes in the trend rate and further negative changes in the economy, management believes that any loss exposures are
properly reflected in reported asset values.



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We monitor delinquent loans for possible exposure to loss by analyzing various factors, including the
value of the collateral securing the loan and the borrowers prior payment history. Under the 1940 Act, our loan portfolio must be recorded at fair value or marked-to-market. Unlike other lending institutions, we are not permitted
to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect our estimate of the current realizable value of our loan portfolio. Since no ready market exists for this portfolio, fair value is
subject to the good faith determination of management and the approval of our Board of Directors. Because of the subjectivity of these estimates, there can be no assurance that in the event of a foreclosure or the sale of portfolio loans we would be
able to recover the amounts reflected on our balance sheet.

In determining the value of our portfolio, management and the Board of
Directors may take into consideration various factors such as the financial condition of the borrower and the adequacy of the collateral. For example, in a period of sustained increases in market interest rates, management and the Board of Directors
could decrease its valuation of the portfolio if the portfolio consists primarily of long-term, fixed-rate loans. Our valuation procedures are designed to generate values that approximate that which would have been established by market forces, and
are therefore subject to uncertainties and variations from reported results. Based upon these factors, net unrealized appreciation or depreciation on investments is determined, or the amount by which our estimate of the current realizable value of
our portfolio is above or below our cost basis.

The following table sets forth the changes in our unrealized appreciation (depreciation)
on investments, other than investments in controlled subsidiaries, for the years ended December 31, 2008, 2007, and 2006.



|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|---------------------------------------------------------------------- |  | ------- | - |  | ----------------- | ------ | - | -------------------- | - | ------- | ----- |  | - | ------- | -
|(Dollars in thousands)                                                 |  | Loans   |   |  | EquityInvestments |        |   | ForeclosedProperties |   |         | Total | 
|Balance December 31, 2005                                              |  | ($7,896 | ) |  | $                 | 629    |   |                      |   | ($1,397 | )     |  |   | ($8,664 | )
|Net change in unrealized                                               |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Appreciation on investments                                            |  |        |   |  |                   | 4,236  |   |                      |   | 921     |       |  |   | 5,157   |  
|Depreciation on investments                                            |  | 824     |   |  |                   | (173   | ) |                      |   |        |       |  |   | 651     |  
|Reversal of unrealized appreciation (depreciation) related to realized |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Gains on investments                                                   |  |        |   |  |                   | (2,579 | ) |                      |   |        |       |  |   | (2,579  | )
|Losses on investments                                                  |  | 4,016   |   |  |                   |       |   |                      |   | 1,423   |       |  |   | 5,439   |  
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Balance December 31, 2006                                              |  | (3,056  | ) |  |                   | 2,113  |   |                      |   | 947     |       |  |   | 4       |  
|Net change in unrealized                                               |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Appreciation on investments                                            |  |        |   |  |                   | 2,127  |   |                      |   | 8,245   |       |  |   | 10,372  |  
|Depreciation on investments                                            |  | (4,246  | ) |  |                   | (133   | ) |                      |   | (159    | )     |  |   | (4,538  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Gains on investments                                                   |  |        |   |  |                   | (1,361 | ) |                      |   | (571    | )     |  |   | (1,932  | )
|Losses on investments                                                  |  | 833     |   |  |                   |       |   |                      |   |        |       |  |   | 833     |  
|Other                                                                  |  |        |   |  |                   | (4     | ) |                      |   | (121    | )     |  |   | (125    | )
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Balance December 31, 2007                                              |  | (6,469  | ) |  |                   | 2,742  |   |                      |   | 8,341   |       |  |   | 4,614   |  
|Net change in unrealized                                               |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Appreciation on investments                                            |  |        |   |  |                   | (1,995 | ) |                      |   | 8,183   |       |  |   | 6,188   |  
|Depreciation on investments                                            |  | (4,076  | ) |  |                   | (110   | ) |                      |   | 168     |       |  |   | (4,018  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Gains on investments                                                   |  |        |   |  |                   |       |   |                      |   | (1,400  | )     |  |   | (1,400  | )
|Losses on investments                                                  |  | 5,230   |   |  |                   |       |   |                      |   | 322     |       |  |   | 5,552   |  
|Other                                                                  |  | 200     |   |  |                   | (200   | ) |                      |   |        |       |  |   |        |  
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Balance December 31, 2008                                              |  | ($5,115 | ) |  | $                 | 437    |   |                      | $ | 15,614  |       |  | $ | 10,936  |  
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  



38



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The following table presents credit-related information for the investment portfolios as of
December 31.



|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|------------------------------------------------------------------------------------------------------------- |  | ---- | -------- | -- | ---- | - | -------- | ---- |  | - | ------- | --
|(Dollars in thousands)                                                                                        |  | 2008 |          |    | 2007 |   |          | 2006 | 
|Total loans                                                                                                   |  |      |          |    |      |   |          |      |  |   |         |   
|Medallion loans                                                                                               |  | $    | 402,964  |    |      | $ | 498,883  |      |  | $ | 428,249 |   
|Commercial loans                                                                                              |  |      | 89,611   |    |      |   | 91,782   |      |  |   | 88,207  |   
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Total loans                                                                                                   |  |      | 492,575  |    |      |   | 590,665  |      |  |   | 516,456 |   
|Investment in Medallion Bank and other controlled subsidiaries                                                |  |      | 74,750   |    |      |   | 57,501   |      |  |   | 50,448  |   
|Equity investments(1)                                                                                         |  |      | 3,272    |    |      |   | 4,880    |      |  |   | 16,068  |   
|Investment securities                                                                                         |  |      |         |    |      |   |         |      |  |   | 9,961   |   
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Net investments                                                                                               |  | $    | 570,597  |    |      | $ | 653,046  |      |  | $ | 592,933 |   
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Net investments at Medallion Bank and other controlled subsidiaries                                           |  | $    | 415,413  |    |      | $ | 335,743  |      |  | $ | 287,664 |   
|Managed net investments                                                                                       |  | $    | 922,007  |    |      | $ | 934,955  |      |  | $ | 833,639 |   
|Unrealized appreciation (depreciation) on investments                                                         |  |      |          |    |      |   |          |      |  |   |         |   
|Medallion loans                                                                                               |  | $    |         |    |      |   | ($37     | )    |  |   | ($457   | ) 
|Commercial loans                                                                                              |  |      | (5,115   | )  |      |   | (6,432   | )    |  |   | (2,599  | ) 
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Total loans                                                                                                   |  |      | (5,115   | )  |      |   | (6,469   | )    |  |   | (3,056  | ) 
|Investment in Medallion Bank and other controlled subsidiaries(2)                                             |  |      |         |    |      |   |         |      |  |   |        |   
|Equity investments                                                                                            |  |      | 437      |    |      |   | 2,742    |      |  |   | 2,113   |   
|Investment securities                                                                                         |  |      |         |    |      |   |         |      |  |   |        |   
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Total unrealized appreciation (depreciation) on investments (2)                                               |  |      | ($4,678  | )  |      |   | ($3,727  | )    |  |   | ($943   | ) 
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Net unrealized appreciation (depreciation) on investments at Medallion Bank and other controlled subsidiaries |  |      | ($11,000 | )  |      |   | ($7,272  | )    |  |   | ($6,459 | ) 
|Managed total unrealized appreciation (depreciation) on investments (2)                                       |  |      | ($15,678 | )  |      |   | ($10,999 | )    |  |   | ($7,402 | ) 
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Unrealized appreciation (depreciation) as a % of balances outstanding (3)                                     |  |      |          |    |      |   |          |      |  |   |         |   
|Medallion loans                                                                                               |  |      |         | %  |      |   | (0.01    | %)   |  |   | (0.11   | %)
|Commercial loans                                                                                              |  |      | (5.39    | )  |      |   | (6.54    | )    |  |   | (2.86   | ) 
|Total loans                                                                                                   |  |      | (1.03    | )  |      |   | (1.08    | )    |  |   | (0.59   | ) 
|Investment in Medallion Bank and other controlled subsidiaries                                                |  |      |         |    |      |   |         |      |  |   |        |   
|Equity investments                                                                                            |  |      | 15.41    |    |      |   | 128.22   |      |  |   | (15.14  | ) 
|Investment securities                                                                                         |  |      |         |    |      |   |         |      |  |   |        |   
|Net investments                                                                                               |  |      | (0.81    | )  |      |   | (0.57    | )    |  |   | (0.16   | ) 
|                                                                                                              |  |      |          |    |      |   |          |      |  |   |         |   
|Net investments at Medallion Bank and other controlled subsidiaries                                           |  |      | (2.62    | %) |      |   | (2.15    | %)   |  |   | (2.22   | %)
|Managed net investments                                                                                       |  |      | (1.68    | %) |      |   | (1.17    | %)   |  |   | (0.88   | %)



|(1) | Represents common stock and warrants held as investments.
|--- | ---------------------------------------------------------



|(2) | Excludes $1,733, $1,920, and $1,250 for unrealized appreciation on Medallion Hamptons Holding, a wholly-owned subsidiary, at December 31, 2008, 2007, and 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Unlike other lending institutions, we are not permitted to establish reserves for loan losses. Instead, the valuation of our portfolio is adjusted quarterly to reflect estimates of
the current realizable value of the loan portfolio. These percentages represent the discount or premiums that investments are carried on the books at, relative to their par or gross value.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



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The following table presents the gain/loss experience on the investment portfolios for the years ended
December 31, 2008, 2007, and 2006.



|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|-------------------------------------------------------------------------------------- |  | ---- | ------- | -- | ---- | - | ------ | ---- |  | - | ------ | --
|(Dollars in thousands)                                                                 |  | 2008 |         |    | 2007 |   |        | 2006 | 
|Realized gains (losses) on loans and equity investments (1)                            |  |      |         |    |      |   |        |      |  |   |        |   
|Medallion loans                                                                        |  | $    | 1,378   |    |      | $ | 1,316  |      |  | $ | 19     |   
|Commercial loans                                                                       |  |      | (5,266  | )  |      |   | (784   | )    |  |   | (5,473 | ) 
|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|Total loans                                                                            |  |      | (3,888  | )  |      |   | 532    |      |  |   | (5,454 | ) 
|Investment in Medallion Bank and other controlled subsidiaries                         |  |      |        |    |      |   |       |      |  |   |       |   
|Equity investments                                                                     |  |      | 142     |    |      |   | 13,640 |      |  |   | 8,534  |   
|Investment securities                                                                  |  |      |        |    |      |   |       |      |  |   |       |   
|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|Total realized gains on loans and equity investments                                   |  |      | ($3,746 | )  |      | $ | 14,172 |      |  | $ | 3,080  |   
|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|Net realized losses on investments at Medallion Bank and other controlled subsidiaries |  |      | (7,893  | )  |      |   | (3,868 | )    |  |   | (2,140 | ) 
|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|Total managed realized gains on loans and equity investments                           |  | ($   | 11,639  | )  |      | $ | 10,304 |      |  | $ | 940    |   
|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|Realized gains (losses) as a % of average balances outstanding                         |  |      |         |    |      |   |        |      |  |   |        |   
|Medallion loans                                                                        |  |      | 0.32    | %  |      |   | 0.28   | %    |  |   | 0.00   | % 
|Commercial loans                                                                       |  |      | (5.21   | )  |      |   | (0.82  | )    |  |   | (5.87  | ) 
|Total loans                                                                            |  |      | (0.72   | )  |      |   | 0.09   |      |  |   | (1.11  | ) 
|Investment in Medallion Bank and other controlled subsidiaries                         |  |      |        |    |      |   |       |      |  |   |       |   
|Equity investments                                                                     |  |      | 5.74    |    |      |   | 408.53 |      |  |   | 40.81  |   
|Investment securities                                                                  |  |      |        |    |      |   |       |      |  |   |       |   
|Net investments                                                                        |  |      | (0.61   | )  |      |   | 2.27   |      |  |   | 0.59   |   
|                                                                                       |  |      |         |    |      |   |        |      |  |   |        |   
|Net investments at Medallion Bank and other controlled subsidiaries                    |  |      | (2.11   | %) |      |   | (1.24  | %)   |  |   | (0.83  | %)
|Managed net investments                                                                |  |      | (1.26   | %) |      |   | 1.16   | %    |  |   | 0.12   | % 



|(1) | Includes realized gains of $1,064, $1,336, and $4 for the years ended December 31, 2008, 2007, and 2006 related to foreclosed properties, which are carried in other assets on
the consolidated balance sheet.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The table below summarizes components of unrealized and realized gains and losses in the
investment portfolios for the years ended December 31, 2008, 2007, and 2006.



|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|(Dollars in thousands)                                                                                       |  | 2008 |         |   | 2007 |   |         | 2006 | 
|Net change in unrealized appreciation (depreciation) on investments                                          |  |      |         |   |      |   |         |      |  |   |        |  
|Unrealized appreciation                                                                                      |  |      | ($1,994 | ) |      | $ | 2,127   |      |  | $ | 4,236  |  
|Unrealized depreciation                                                                                      |  |      | (4,186  | ) |      |   | (4,379  | )    |  |   | (7,185 | )
|Net unrealized appreciation (depreciation) on investment in Medallion Bank and other controlled subsidiaries |  |      | (2,419  | ) |      |   | 2,292   |      |  |   | 7,454  |  
|Realized gains                                                                                               |  |      |        |   |      |   | (11,647 | )    |  |   | (2,579 | )
|Realized losses                                                                                              |  |      | 5,230   |   |      |   | 833     |      |  |   | 4,016  |  
|Unrealized gains on foreclosed properties                                                                    |  |      | 7,273   |   |      |   | 6,740   |      |  |   | 921    |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|Total                                                                                                        |  | $    | 3,904   |   |      |   | ($4,034 | )    |  | $ | 6,863  |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|Net realized gains (losses) on investments                                                                   |  |      |         |   |      |   |         |      |  |   |        |  
|Realized gains                                                                                               |  | $    |        |   |      | $ | 2,914   |      |  | $ | 2,579  |  
|Realized losses                                                                                              |  |      | (5,230  | ) |      |   | (833    | )    |  |   | (4,016 | )
|Other gains                                                                                                  |  |      | 470     |   |      |   | 10,732  |      |  |   | 5,997  |  
|Direct recoveries (charge-offs)                                                                              |  |      | (50     | ) |      |   | 23      |      |  |   | (1,484 | )
|Realized gains on foreclosed properties                                                                      |  |      | 1,064   |   |      |   | 1,336   |      |  |   | 4      |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|Total                                                                                                        |  |      | ($3,746 | ) |      | $ | 14,172  |      |  | $ | 3,080  |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  

Investment in Medallion Bank and Other Controlled Subsidiaries

Investment in Medallion Bank and other controlled subsidiaries were 13%, 9%, and 8% of our total portfolio at December 31, 2008, 2007, and 2006. The
portfolio company investments primarily represent the wholly-owned unconsolidated subsidiaries of ours, substantially all of which is represented by our investment in Medallion Bank, a non-pass-through, taxpaying entity. We are currently in
discussions with the IRS to obtain LLC tax treatment for Medallion Bank, which would provide pass-through taxation for our shareholders, and which has already been agreed to by the State of Utah. We cannot assure you that we will be
successful in our efforts, but if we are successful, this treatment would reduce taxes and increase the reported net income of Medallion Bank. In addition, to facilitate maintenance of Medallion Banks capital ratio requirement and to provide
the necessary capital for continued growth, the Company periodically makes capital contributions to Medallion Bank, including an aggregate of $10,750,000 contributed over various months in 2008 and an aggregate of $6,800,000 contributed similarly in
2007. Separately, Medallion Bank paid



40



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##### Table of Contents

dividends to the Company of $6,000,000 in 2008 and $5,750,000 in 2007. Without the capital infusions by the Company, a portion of the Medallion Bank
dividends would have been retained to ensure Medallion Bank met its capital ratio requirements, and in such circumstance, if the Company maintained its dividend at the existing levels, a portion of those dividends would have represented a tax-free
return of capital. See note 4 of the consolidated financial statements for additional information about these investments.

Equity
Investments

Equity investments were 1%, 1%, and 3% of our total portfolio at December 31, 2008, 2007, and 2006. Equity
investments were less than 1%, 1%, and 2% of our total managed portfolio at December 31, 2008, 2007, and 2006. Equity investments are comprised of common stock, partnership interests, and warrants. The decreases in equity investments primarily
reflected the sale of shares of common stock of Clear Channel that were received in a tax-free exchange for 100% of our ownership interest in Medallion Taxi Media.

Investment Securities

Investment securities were 0%, 0%, and 2% of our total portfolio at
December 31, 2008, 2007, and 2006. Investment securities were 2%, 2%, and 4% of our total managed portfolio at December 31, 2008, 2007, and 2006. The investment securities are primarily US Treasuries and/or adjustable-rate mortgage-backed
securities purchased by Medallion Bank to better utilize required cash liquidity.

Trend in Interest Expense

Our interest expense is driven by the interest rates payable on our short-term credit facilities with banks, bank certificates of deposit, fixed-rate,
long-term debentures issued to the SBA, and other short-term notes payable. The establishment of the Merrill Lynch Commercial Financial Corp line of credit in September 2002 (fully paid off in December 2008), and its favorable subsequent
renegotiations had the effect of substantially reducing our cost of funds. Most recently, we established additional medallion lending relationships with DZ Bank in December 2008, and with Citibank in December 2006 that provide for future growth in
the portfolio at generally lower rates than under prior facilities. In addition, Medallion Bank began raising brokered bank certificates of deposit during 2004, which were at our lowest borrowing costs. As a result of Medallion Bank raising funds
through certificates of deposits as previously noted, we were able to realign the ownership of some of our medallion loans and related assets to Medallion Bank allowing us and our subsidiaries to use cash generated through these transactions to
retire debt with higher interest rates. In addition, Medallion Bank is able to bid on these deposits at a wide variety of maturity levels which allows for improved interest rate management strategies.

Our cost of funds is primarily driven by the rates paid on our various debt instruments and their relative mix, and changes in the levels of average
borrowings outstanding. See Note 5 to the consolidated financial statements for details on the terms of all outstanding debt. Our debentures issued to the SBA typically have terms of ten years.



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We measure our borrowing costs as our aggregate interest expense for all of our interest-bearing
liabilities divided by the average amount of such liabilities outstanding during the period. The following table shows the average borrowings and related borrowing costs for the years ended December 31, 2008, 2007, and 2006. Average balances
have generally increased, primarily reflecting the funding needs to support the growth in our investment portfolios, although the 2008 decline in the revolving lines of credit reflect loan participations sold during the year. The increase in
borrowing costs reflected the trend of increasing interest rates in the economy.



|                          |  |                 |        |                |   |                       |  |      |  
|------------------------- |  | --------------- | ------ | -------------- | - | --------------------- |  | ---- | -
|(Dollars in thousands)    |  | InterestExpense |        | AverageBalance |   | AverageBorrowingCosts | 
|December 31, 2008         |  |                 |        |                |   |                       |  |      |  
|Revolving lines of credit |  | $               | 15,161 |                | $ | 355,706               |  | 4.26 | %
|SBA debentures            |  |                 | 5,253  |                |   | 81,319                |  | 6.46 |  
|Preferred Securities      |  |                 | 2,538  |                |   | 33,000                |  | 7.69 |  
|Notes payable to banks    |  |                 | 759    |                |   | 11,982                |  | 6.33 |  
|Margin loans              |  |                 |       |                |   |                      |  |     |  
|                          |  |                 |        |                |   |                       |  |      |  
|Total                     |  | $               | 23,711 |                | $ | 482,007               |  | 4.92 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Medallion Bank borrowings |  |                 | 14,934 |                |   | 324,141               |  | 4.61 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Total managed borrowings  |  | $               | 38,645 |                | $ | 806,148               |  | 4.79 |  
|                          |  |                 |        |                |   |                       |  |      |  
|December 31, 2007         |  |                 |        |                |   |                       |  |      |  
|Revolving lines of credit |  | $               | 23,185 |                | $ | 380,405               |  | 6.09 | %
|SBA debentures            |  |                 | 5,007  |                |   | 77,250                |  | 6.48 |  
|Preferred Securities      |  |                 | 1,538  |                |   | 19,822                |  | 7.76 |  
|Notes payable to banks    |  |                 | 849    |                |   | 12,324                |  | 6.89 |  
|Margin loans              |  |                 | 125    |                |   | 2,221                 |  | 5.63 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Total                     |  | $               | 30,704 |                | $ | 492,022               |  | 6.24 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Medallion Bank borrowings |  |                 | 13,804 |                |   | 268,962               |  | 5.13 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Total managed borrowings  |  | $               | 44,508 |                | $ | 760,984               |  | 5.85 |  
|                          |  |                 |        |                |   |                       |  |      |  
|December 31, 2006         |  |                 |        |                |   |                       |  |      |  
|Revolving lines of credit |  | $               | 17,550 |                | $ | 323,823               |  | 5.42 | %
|SBA debentures            |  |                 | 4,981  |                |   | 77,250                |  | 6.45 |  
|Notes payable to banks    |  |                 | 1,119  |                |   | 14,824                |  | 7.55 |  
|Margin loans              |  |                 | 540    |                |   | 9,165                 |  | 5.89 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Total                     |  | $               | 24,190 |                | $ | 425,062               |  | 5.69 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Medallion Bank borrowings |  |                 | 10,454 |                |   | 232,605               |  | 4.49 |  
|                          |  |                 |        |                |   |                       |  |      |  
|Total managed borrowings  |  | $               | 34,644 |                | $ | 657,667               |  | 5.27 |  
|                          |  |                 |        |                |   |                       |  |      |  

We will continue to seek SBA funding to the extent it offers attractive rates. SBA financing
subjects its recipients to limits on the amount of secured bank debt they may incur. We use SBA funding to fund loans that qualify under Small Business Investment Act (SBIA) and SBA regulations. We believe that financing operations primarily with
short-term floating rate secured bank debt has generally decreased our interest expense, but has also increased our exposure to the risk of increases in market interest rates, which we mitigate with certain interest rate strategies. At
December 31, 2008, 2007, and 2006, short-term floating rate debt constituted 78%, 78%, and 82% of total debt, and was 44%, 51%, and 53% on a fully managed basis including the borrowings of Medallion Bank.

Factors Affecting Net Assets

Factors that affect our net assets include net realized gain or loss on investments and change in net unrealized appreciation or depreciation on investments. Net realized gain or loss on investments is the difference between the proceeds
derived upon sale or foreclosure of a loan or an equity investment and the cost basis of such loan or equity investment. Change in net unrealized appreciation or depreciation on investments is the amount, if any, by which our estimate of the fair
value of our investment portfolio is above or below the previously established fair value or the cost basis of the portfolio. Under the 1940 Act and the SBIA, our loan portfolio and other investments must be recorded at fair value.

Unlike certain lending institutions, we are not permitted to establish reserves for loan losses, but adjust quarterly the valuation of the loan portfolio
to reflect our estimate of the current value of the total loan portfolio. Since no ready market exists for our loans, fair value is subject to our good faith determination. In determining such fair value, we and our Board of Directors consider
factors such as the financial condition of its borrowers and the adequacy of their collateral. Any change in the fair value of portfolio loans or other investments as determined by us is reflected in net unrealized depreciation or appreciation of
investments and affects net increase in net assets resulting from operations but has no impact on net investment income or distributable income.



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Our investment in Medallion Bank, as a wholly-owned portfolio investment, is also subject to quarterly
assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value, including various regulatory restrictions that were established
at Medallion Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion Banks actual
results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable factors could change
these conclusions in the future.

Consolidated Results of Operations

Since Medallion Bank commenced operations in December 2003, we had historically consolidated Medallion Banks financial statements with those of our
own. Although Medallion Bank is not an investment company, and SEC rules generally do not permit investment companies such as ours to consolidate the financial statements of non-investment companies, such as Medallion Bank, we had sought and
obtained a letter from the SEC in March 2004 permitting such consolidation. We believed that consolidating Medallion Bank provided a more complete and accurate representation of our full scope of operations, and our complete financial position and
results of operations.

During August 2006, we filed a registration statement on Form N-2 which the SEC staff reviewed and on which they
provided comments, including those relating to the consolidation of the accounts of Medallion Bank which have evolved since 2004. Based on discussion with the SEC staff, we determined during the 2006 fourth quarter to voluntarily not consolidate
Medallion Bank and present Medallion Bank as a portfolio company. We determined that this change represents a change in the reporting entity as described in SFAS No. 154, Accounting Changes and Error Corrections. Accordingly we
retrospectively applied this change to the financial statements of all prior periods presented, including previously issued interim periods presented, included in our 2006 Form 10-K. The effect of this retrospective application was to present our
financial position and results of operations as if Medallion Bank had not been consolidated for all periods presented and to present Medallion Bank as an unconsolidated portfolio investment. Although this created changes in the reported levels of
assets, liabilities, revenues, and expenses, our net increase in net assets resulting from operations, shareholders equity, and the related amounts per common share were unchanged.

For the Years Ended December 31, 2008 and 2007

Net increase in net assets resulting from
operations was $15,248,000 or $0.86 per diluted common share in 2008, down $188,000 or 1% from $15,436,000 or $0.87 per share in 2007. The 2008 changes primarily reflected lower net realized/unrealized gains, partially offset by higher net interest
and noninterest income and lower operating expenses. Net investment income after taxes was $15,090,000 or $0.85 per share in 2008, up $9,792,000 from $5,298,000 or $0.30 per share in 2007.

Investment income was $52,284,000 in 2008, up $891,000 or 2% from $51,393,000 a year ago, and included $4,471,000 from interest recoveries and bonuses on
certain investments in 2008, compared to $821,000 in 2007. Also included in 2008 were $6,000,000 in dividends from Medallion Bank, compared to $5,750,000 in 2007. Excluding those items, investment income decreased $3,009,000 or 7%, primarily
reflecting changes in the yields earned. The yield on the investment portfolio was 8.58% in 2008, up 2% from 8.44% in 2007. Excluding the extra interest and dividends, the 2008 yield was down 7% to 6.86% from 7.36% in 2007, reflecting the general
decrease in market interest rates and changes in the portfolio mix. Average investments outstanding were $609,634,000 in 2008 up slightly from $608,626,000 a year ago, primarily reflecting loan participations sold, partly offset by growth in the
medallion loan portfolio.

Medallion loans were $402,964,000 at year end, down $95,919,000 or 19% from $498,883,000 a year ago,
representing 70% of the investment portfolio compared to 76% a year ago, and were yielding 6.42% compared to 7.13% a year ago, a decrease of 10%, reflecting the declining interest rate environment. The decrease in outstandings primarily reflected an
increase in loan participations sold and certain fleet repayments, partially offset by portfolio growth. The managed medallion portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $591,413,000 at year end, up
$472,000 from $590,941,000 a year ago. The commercial loan portfolio was $89,611,000 at year end, compared to $91,782,000 a year ago, a decrease of $2,171,000 or 2%, and represented 16% of the investment portfolio, compared to 14% a year ago. The
decrease primarily reflected reductions in the asset-based and other secured commercial lending portfolios, partially offset by growth in the high-yield mezzanine loan portfolio. Commercial loans yielded 11.97% at year end, down 1% from 12.12% a
year ago, reflecting the market rate decreases. The net managed commercial portfolio, which includes loans at Medallion Bank and those serviced for or by third parties, was $167,576,000



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at year end, up $1,593,000 from $166,983,000 a year ago, primarily reflecting growth in the high-yield mezzanine loan portfolio, partially offset by the net
decrease in third party loan participations purchased. Investments in Medallion Bank and other controlled subsidiaries were $74,750,000 at year end, up $17,249,000 or 30% from $57,501,000 a year ago, primarily reflecting the increase in investments
in the SPAC and Medallion Bank, and our equity in the earnings of Medallion Bank, and which represented 13% of the investment portfolio compared to 9% a year ago, and which yielded 8.22% at year end, compared to 13.64% a year ago. See Notes 3 and 10
of the consolidated financial statements for additional information about Medallion Bank and the other controlled subsidiaries. Equity investments were $3,272,000 at year end, down $1,608,000 or 33% from $4,880,000 a year ago, primarily reflecting
portfolio depreciation, partially offset by increased equity purchases, and represented 1% of the investment portfolio at both year ends, and had a dividend yield of 4.33%, compared to 4.70% a year ago. Investment securities were zero at both year
ends. See page 35 for a table that shows balances and yields by type of investment.

Interest expense was $23,711,000 in 2008, down
$6,993,000 or 23% from $30,704,000 in 2007. The decrease in interest expense was primarily due to the decreased cost of borrowed funds. The cost of borrowed funds was 4.92% in 2008, compared to 6.24% a year ago, a decrease of 21%, reflecting the
peak in rates during 2007, and their subsequent decline as the Fed lowered interest rates, and that impact on the adjustable rate nature of much of our borrowings. Average debt outstanding was $482,007,000 in 2008, compared to $492,022,000 a year
ago, a decrease of 2%, reflecting changes in the levels of borrowings used to fund portfolio investments. See page 42 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $28,573,000 and the net interest margin was 4.69% in 2008, up $7,884,000 or 38% from $20,689,000 a year ago, which represented a
net interest margin of 3.40%, all reflecting the items discussed above.

Noninterest income, which is comprised of servicing fee income,
prepayment fees, late charges, and other miscellaneous income was $3,837,000 in 2008, up $1,393,000 or 57% from $2,444,000 a year ago. Included in noninterest income in 2008 were unusually large prepayment penalties relating to the payoffs of
several large fleets of $667,000. Excluding those prepayment penalties, noninterest income increased 28% in 2008, primarily reflecting higher servicing fees generated from the portfolio base, other prepayment penalties, and investment partnership
income distributions.

Operating expenses were $17,320,000 in 2008, down $515,000 or 3% from $17,835,000 in 2007. Salaries and benefits
expense was $10,689,000 in the year, up $497,000 or 5% from $10,192,000 in 2007, primarily reflecting higher staffing and salary levels, partially offset by lower bonus accruals, higher salary deferrals related to loan originations, and lower stock
compensation expense. Professional fees were $1,606,000 in 2008, down $997,000 or 38% from $2,603,000 a year ago, primarily reflecting higher 2007 costs related to investment projects under consideration, higher accounting costs, including costs
related to deconsolidating Medallion Bank and for consultant services for operational reviews, and higher legal expenses. Rent expense was $1,271,000 in 2008, down $82,000 or 6% from $1,353,000 in 2007, primarily reflecting catch up rent
reimbursements received from an unconsolidated portfolio company. Other operating expenses of $3,754,000 in 2008 were up $67,000 or 2% from $3,687,000 a year ago, reflecting higher directors fees, franchise tax accruals, and travel and
entertainment expense, partially offset by lower loan collections costs, office expense, and insurance expense.

Income tax expense was $0
in 2008 and 2007.

Net change in unrealized appreciation on investments was $3,904,000 in 2008, compared to depreciation of $4,034,000 in
2007, an increase of $7,938,000 in appreciation in 2008. Net change in unrealized appreciation, net of the net unrealized appreciation or depreciation on Medallion Bank and the other controlled subsidiaries was $6,323,000 in 2008, compared to
depreciation of $6,326,000 in 2007, resulting in increased appreciation of $12,649,000 in 2008. Unrealized appreciation (depreciation) arises when we make valuation adjustments to the investment portfolio. When investments are sold or written off,
any resulting realized gain (loss) is grossed up to reflect previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2008 activity resulted from net unrealized appreciation on foreclosed property of
$8,351,000 and reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $5,230,000, partially offset by net unrealized depreciation on loans of $3,875,000, net depreciation on Medallion Bank and other
controlled subsidiaries of $2,419,000, net unrealized depreciation on equity investments of $2,305,000, and by net reversals of unrealized appreciation associated with foreclosed properties that were sold of $1,078,000. The 2007 activity resulted
from reversals of unrealized appreciation associated with equity investments that were sold of $11,647,000, net unrealized depreciation on loans of $4,246,000, and reversals of unrealized appreciation associated with foreclosed properties that were
sold of $1,336,000, partially offset by net unrealized appreciation on foreclosed property of $8,076,000, net appreciation on Medallion Bank and other controlled subsidiaries of $2,292,000, net unrealized appreciation on equity investments of
$1,994,000, and by reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $833,000. The net appreciation or depreciation on Medallion Bank and other controlled subsidiaries described above is net of
dividends declared by them to Medallion Financial of $6,000,000 in 2008 and $5,750,000 in 2007.



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Our net realized losses on investments were $3,746,000 in 2008, compared to gains of $14,172,000 in 2007.
The 2008 activity reflected the reversals described in the unrealized paragraph above and net direct charge offs of $50,000 and net direct losses on foreclosed properties of $14,000, partially offset by net direct gains on sales of equity and other
investments of $470,000. The 2007 activity reflected the above and net direct gains on sales of equity and other investments of $1,999,000 and net direct recoveries of $23,000.

The Companys net realized/unrealized gains on investments were $158,000 in 2008 and $10,138,000 in 2007, reflecting the above.

For the Years Ended December 31, 2007 and 2006

Net increase in net assets resulting from operations was $15,436,000 or $0.87 per diluted common share in 2007, up $2,328,000 or 18% from $13,108,000 or $0.74 per share in 2006. The 2007 increase primarily reflected higher net interest
income and net realized/unrealized gains, partially offset by higher operating expenses and lower noninterest income. Net investment income after taxes was $5,298,000 or $0.30 per share in 2007, up $2,133,000 or 67% from $3,165,000 or $0.18 per
share in 2006.

Investment income was $51,393,000 in 2007, up $11,758,000 or 30% from $39,635,000 a year ago, and included $821,000 from
interest recoveries on certain investments in 2007, compared to $1,556,000 in 2006. Also included in 2007 were $5,750,000 in dividends from Medallion Bank. Excluding those items, investment income increased $6,743,000 or 18%, primarily reflecting
growth in the investment portfolios and to a lesser extent, changes in the yields earned. The yield on the investment portfolio was 8.44% in 2007, up 9% from 7.71% in 2006. Excluding the interest recoveries and dividends, the 2007 yield was down 1%
to 7.36% from 7.42% in 2006, reflecting the general decrease in market interest rates and changes in the portfolio mix. Average investments outstanding were $608,626,000 in 2007, up 19% from $513,059,000 a year ago, primarily reflecting growth in
the medallion loan portfolio.

Medallion loans were $498,883,000 at year end, up $70,634,000 or 17% from $428,249,000 a year ago,
representing 76% of the investment portfolio compared to 72% a year ago, and were yielding 7.13% compared to 6.93% a year ago, an increase of 3%. The increase in outstandings primarily reflected efforts to book new business, primarily in the New
York City market, and also reflected the increase in medallion values. The managed medallion portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $590,941,000 at year end, up $62,965,000 or 12% from
$527,976,000 a year ago. The commercial loan portfolio was $91,782,000 at year end, compared to $88,207,000 a year ago, an increase of $3,575,000 or 4%, and represented 14% of the investment portfolio compared to 15% a year ago. The increase
primarily reflected growth in the high-yield mezzanine loan portfolio, partially offset by increases in valuation allowances. Commercial loans yielded 12.12% at year end, down 1% from 12.21% a year ago, reflecting the interest rate cycle peak in
2007 and the beginning of market rate decreases. The managed commercial portfolio, which includes loans at Medallion Bank and those serviced for third parties, was $166,983,000 at year end, up $10,778,000 or 7% from $156,205,000 a year ago,
primarily reflecting the increases described above and growth at Medallion Bank, partially offset by the net increase in third party loan participations purchased. Investments in Medallion Bank and other controlled subsidiaries was $57,501,000 at
year end, up $7,053,000 or 14% from $50,448,000 a year ago, primarily reflecting the increased value of those investments, a large portion of which reflected the earnings of Medallion Bank, and which represented 9% of the investment portfolio for
both years, and which yielded 13.79% the end of 2007, compared to 0.00% a year ago. See Note 4 of the consolidated financial statements for additional information about Medallion Bank and the other controlled subsidiaries. Equity investments were
$4,880,000, down $11,188,000 or 70% from $16,068,000 a year ago, primarily reflecting the sale of a portion of the Clear Channel common stock received for our ownership interest in Media, partially offset by portfolio appreciation, and represented
1% of the investment portfolio and had a dividend yield of 4.70%, compared to 3% and 2.23% a year ago. Investment securities were zero at year end, compared to $9,961,000 a year ago, when they represented 2% of the investment portfolio and yielded
5.09%. See page 35 for a table that shows balances and yields by type of investment.

Interest expense was $30,704,000 in 2007, up
$6,514,000 or 27% from $24,190,000 in 2006. The increase in interest expense was due to increased levels of borrowings compounded by the higher cost of borrowed funds. Average debt outstanding was $492,022,000 for 2007, compared to $425,061,000 a
year ago, an increase of 16%, primarily reflecting increased borrowings used to fund portfolio investment growth. The cost of borrowed funds was 6.24% in 2007, compared to 5.69% a year ago, an increase 10%, reflecting increases in the general level
of interest rates over the last year, and the adjustable rate nature of much of our borrowings. See page 42 for a table which shows average balances and cost of funds for our funding sources.

Net interest income was $20,689,000 and the net interest margin was 3.40% for 2007, up $5,244,000 or 34% from $15,445,000 a year ago, which represented a
net interest margin of 3.01%, all reflecting the items discussed above.



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Noninterest income, which is comprised of servicing fee income, prepayment penalties, late charges, and
other miscellaneous income was $2,444,000 in 2007, down $202,000 or 8% from $2,646,000 a year ago. Included in 2006 was $629,000 of unusually large prepayment penalties from several large paid-off loans. Excluding those prepayment penalties,
noninterest income increased 21% in 2007, reflecting higher servicing fees, other prepayment penalties, and late charges on a larger portfolio base.

Operating expenses were $17,835,000 in 2007, up $2,909,000 or 20% from $14,926,000 in 2006. Salaries and benefits expense was $10,192,000 in the year, up $1,999,000 or 24% from $8,193,000 in 2006, primarily reflecting
higher bonus accruals and an increase in headcount and salary levels, partially offset by increased salary deferrals related to loan originations. Professional fees were $2,603,000 in 2007, up $648,000 or 33% from $1,955,000 a year ago. The increase
primarily reflected higher investment project-related professional costs, higher accounting costs, including costs related to deconsolidating Medallion Bank and for consultant services for operational reviews, and higher legal expenses. Rent expense
was $1,353,000 in the year, up $87,000 or 7% compared to $1,266,000 in 2006, reflecting lease adjustments. Other operating expenses of $3,687,000 in 2007 were up $175,000 or 5% from $3,512,000 a year ago, primarily reflecting higher general office
expenses and franchise tax accruals, partially offset by lower directors fees and loan collections costs.

Income tax expense was $0
in 2007 and 2006.

Net unrealized depreciation on investments of $4,034,000 in 2007, compared to appreciation of $6,863,000 in 2006, a
decrease of $10,897,000. Net change in unrealized depreciation, net of the net change in unrealized appreciation on Medallion Bank and the other controlled subsidiaries, was $6,326,000 in 2007, compared to $591,000 in 2006, resulting in increased
depreciation of $5,735,000 in 2007. Unrealized appreciation (depreciation) arises when we make valuation adjustments to the investment portfolio. When investments are sold or written off, any resulting realized gain (loss) is grossed up to reflect
previously recorded unrealized components. As a result, movement between periods can appear distorted. The 2007 activity resulted from reversals of unrealized appreciation associated with equity investments that were sold of $11,647,000, net
unrealized depreciation on loans of $4,246,000, and reversals of unrealized appreciation associated with foreclosed properties that were sold of $1,336,000, partially offset by net unrealized appreciation on foreclosed property of $8,076,000, net
appreciation on Medallion Bank and other controlled subsidiaries of $2,292,000, net unrealized appreciation on equity investments of $1,994,000, and by reversals of unrealized depreciation associated with fully depreciated loans which were charged
off of $833,000. The net appreciation on Medallion Bank and other controlled subsidiaries described above is net of the $5,750,000 of dividends declared by them to Medallion Financial in 2007. The 2006 activity resulted from net appreciation on
Medallion Bank and other controlled subsidiaries of $7,454,000, net unrealized appreciation on equity investments of $4,236,000, reversals of unrealized depreciation associated with fully depreciated loans which were charged off of $4,016,000, and
net unrealized appreciation on foreclosed property of $921,000, partially offset by net unrealized depreciation on loans of $7,185,000 and reversals of unrealized appreciation associated with equity investments that were sold of $2,579,000. See
Notes 3 and 4 to the consolidated financial statements for more information about Medallion Bank and other controlled subsidiaries.

Our
net realized gains on investments were $14,172,000 in 2007, compared to $3,080,000 in 2006. The 2007 activity reflected the reversals described in the unrealized paragraph above and by net direct gains on sales of equity and other investments of
$1,999,000 and net direct recoveries of $23,000. The 2006 activity reflected the above and net direct gains on sales of equity and other investments of $5,997,000 and gains on sales of foreclosed property of $4,000, partially offset by net direct
chargeoffs $1,484,000.

The Companys net realized/unrealized gains on investments were $10,138,000 in 2007, compared to $9,943,000 in
2006, reflecting the above.

ASSET/LIABILITY MANAGEMENT

Interest Rate Sensitivity

We, like
other financial institutions, are subject to interest rate risk to the extent that our interest-earning assets (consisting of medallion, commercial, and consumer loans; and investment securities) reprice on a different basis over time in comparison
to our interest-bearing liabilities (consisting primarily of credit facilities with banks and other lenders, bank certificates of deposit, and subordinated SBA debentures).

Having interest-bearing liabilities that mature or reprice more frequently on average than assets may be beneficial in times of declining interest rates,
although such an asset/liability structure may result in declining net earnings during periods of rising interest rates. Abrupt increases in market rates of interest may have an adverse impact on our earnings until we are able to originate new loans
at the higher prevailing interest rates. Conversely, having interest-earning assets that mature or reprice more frequently on average



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than liabilities may be beneficial in times of rising interest rates, although this asset/liability structure may result in declining net earnings during
periods of falling interest rates. This mismatch between maturities and interest rate sensitivities of our interest-earning assets and interest-bearing liabilities results in interest rate risk.

The effect of changes in interest rates is mitigated by regular turnover of the portfolio. Based on past experience, we anticipate that approximately 40%
of the taxicab medallion portfolio will mature or be prepaid each year. We believe that the average life of our loan portfolio varies to some extent as a function of changes in interest rates. Borrowers are more likely to exercise prepayment rights
in a decreasing interest rate environment because the interest rate payable on the borrowers loan is high relative to prevailing interest rates. Conversely, borrowers are less likely to prepay in a rising interest rate environment. However,
borrowers may prepay for a variety of other reasons, such as to monetize increases in the underlying collateral values, particularly in the medallion loan portfolio.

In addition, we manage our exposure to increases in market rates of interest by incurring fixed-rate indebtedness, such as ten year subordinated SBA debentures, and by setting repricing intervals or the maturities of
tranches drawn under the revolving lines of credit or issued as certificates of deposit, for terms of up to five years. We had outstanding SBA debentures of $88,250,000 with a weighted average interest rate of 6.10%, constituting 19% of our total
indebtedness as of December 31, 2008. Also, as of December 31, 2008, portions of the adjustable rate debt with banks repriced at intervals of as long as 45 months, and certain of the certificates of deposit were for terms of up to 35
months, further mitigating the immediate impact of changes in market interest rates.

A relative measure of interest rate risk can be
derived from our interest rate sensitivity gap. The interest rate sensitivity gap represents the difference between interest-earning assets and interest-bearing liabilities, which mature and/or reprice within specified intervals of time. The gap is
considered to be positive when repriceable assets exceed repriceable liabilities, and negative when repriceable liabilities exceed repriceable assets. A relative measure of interest rate sensitivity is provided by the cumulative difference between
interest sensitive assets and interest sensitive liabilities for a given time interval expressed as a percentage of total assets.

The
following table presents our interest rate sensitivity gap at December 31, 2008, compared to the respective positions at the end of 2007 and 2006. The principal amount of interest earning assets are assigned to the time frames in which such
principal amounts are contractually obligated to be repriced. We have not reflected an assumed annual prepayment rate for such assets in this table.



|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|-------------------------------- |  | ----------------------------------------- | --------- | - | ------------------------------ | - | --------- | ------------------------------ |  | - | ------------------------------ | - | ------------------------------ | - | ----------------------------- |  | - | ---------- |  | - | ------- | - |  | -- | ------ | - |  | - | -------
|                                 |  | December 31, 2008 Cumulative Rate Gap (1)
|(Dollars in thousands)           |  | Less Than 1Year                           |           |   | More Than 1and LessThan 2Years |   |           | More Than2 and LessThan 3Years |  |   | More Than3 and LessThan 4Years |   | More Than4 and LessThan 5Years |   | MoreThan 5and LessThan 6Years |  |   | Thereafter |  |   | Total  
|Earning assets                   |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Floating-rate                    |  | $                                         | 17,013    |   |                                | $ |          |                                |  | $ |                               |   |                                | $ |                              |  | $ |           |  | $ |        |   |  | $  |       |   |  | $ | 17,013 
|Adjustable rate                  |  |                                           | 9,125     |   |                                |   | 1,061     |                                |  |   | 29,059                         |   |                                |   | 9,136                         |  |   |           |  |   |        |   |  |    |       |   |  |   | 48,381 
|Fixed-rate                       |  |                                           | 30,647    |   |                                |   | 68,152    |                                |  |   | 221,094                        |   |                                |   | 46,011                        |  |   | 43,649     |  |   | 8,767   |   |  |    | 13,724 |   |  |   | 432,044
|Cash                             |  |                                           | 32,075    |   |                                |   |          |                                |  |   |                               |   |                                |   |                              |  |   |           |  |   |        |   |  |    |       |   |  |   | 32,075 
|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Total earning assets             |  | $                                         | 88,860    |   |                                | $ | 69,213    |                                |  | $ | 250,153                        |   |                                | $ | 55,147                        |  | $ | 43,649     |  | $ | 8,767   |   |  | $  | 13,724 |   |  | $ | 529,513
|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Interest bearing liabilities     |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Revolving line of credit         |  | $                                         | 314,858   |   |                                | $ |          |                                |  | $ |                               |   |                                | $ |                              |  | $ |           |  | $ |        |   |  | $  |       |   |  | $ | 314,858
|Notes payable to banks           |  |                                           | 15,000    |   |                                |   |          |                                |  |   | 11,542                         |   |                                |   |                              |  |   |           |  |   |        |   |  |    |       |   |  |   | 26,542 
|Preferred securities             |  |                                           |          |   |                                |   |          |                                |  |   |                               |   |                                |   | 33,000                        |  |   |           |  |   |        |   |  |    |       |   |  |   | 33,000 
|SBA debentures                   |  |                                           |          |   |                                |   |          |                                |  |   | 17,985                         |   |                                |   | 13,500                        |  |   | 19,450     |  |   | 13,500  |   |  |    | 23,815 |   |  |   | 88,250 
|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Total liabilities                |  | $                                         | 329,858   |   |                                | $ |          |                                |  | $ | 29,527                         |   |                                | $ | 46,500                        |  | $ | 19,450     |  | $ | 13,500  |   |  | $  | 23,815 |   |  | $ | 462,650
|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Interest rate gap                |  |                                           | ($240,998 | ) |                                | $ | 69,213    |                                |  | $ | 220,626                        |   |                                | $ | 8,647                         |  | $ | 24,199     |  |   | ($4,733 | ) |  | ($ | 10,091 | ) |  | $ | 66,863 
|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|Cumulative interest rate gap (2) |  |                                           | ($240,998 | ) |                                |   | ($171,785 | )                              |  | $ | 48,841                         |   |                                | $ | 57,488                        |  | $ | 81,687     |  | $ | 76,954  |   |  | $  | 66,863 |   |  |   |       
|                                 |  |                                           |           |   |                                |   |           |                                |  |   |                                |   |                                |   |                               |  |   |            |  |   |         |   |  |    |        |   |  |   |        
|December 31, 2007(2)             |  |                                           | ($278,252 | ) |                                |   | ($185,966 | )                              |  |   | ($21,721                       | ) |                                | $ | 77,901                        |  | $ | 108,459    |  | $ | 96,540  |   |  | $  | 87,305 |   |  |   |       
|December 31, 2006(2)             |  |                                           | (267,015  | ) |                                |   | (152,783  | )                              |  |   | (8,334                         | ) |                                |   | 53,943                        |  |   | 127,019    |  |   | 115,046 |   |  |    | 89,104 |   |  |   |       



|(1) | The ratio of the cumulative one year gap to total interest rate sensitive assets was (46%), (44%), and (49%), as of December 31, 2008, 2007, and 2006, and was (34%), (34%), and
(34%), on a combined basis with Medallion Bank.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Adjusted for the medallion loan 40% prepayment assumption results in a cumulative one year negative interest rate gap and related ratio of ($107,671) or (20%) for
December 31, 2008, compared to a negative rate gap of ($127,292) or (20%) and ($127,184) or ( 23%) for December 31, 2007 and 2006, respectively, and was ($155,873) or (16%), ($156,202) or (16%), and ($117,151) or (14%) on a
combined basis with Medallion Bank.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



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##### Table of Contents

Our interest rate sensitive assets were $529,513,000 and interest rate sensitive liabilities were
$462,650,000 at December 31, 2008. The one-year cumulative interest rate gap was a negative $240,998,000 or 46% of interest rate sensitive assets, compared to a negative $278,252,000 or 44% at December 31, 2007 and $267,015,000 or 49% at
December 31, 2006. However, using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $107,671,000 or 20% at December 31, 2008. We seek to manage interest rate
risk by originating adjustable-rate loans, by incurring fixed-rate indebtedness, by evaluating appropriate derivatives, pursuing securitization opportunities, and by other options consistent with managing interest rate risk.

On a combined basis with Medallion Bank, our interest rate sensitive assets were approximately $959,237,000 and interest rate sensitive liabilities were
$829,058,000 at December 31, 2008. The one-year cumulative interest rate gap was a negative $326,687,000 or 34% of interest rate sensitive assets, compared to a negative $333,855,000 or 34% and $287,680,000 or 34% at December 31, 2007 and
2006. Using our estimated 40% prepayment/refinancing rate for medallion loans to adjust the interest rate gap resulted in a negative gap of $155,873,000 or 16% at December 31, 2007.

Interest Rate Cap Agreements

From
time-to time, we enter into interest rate cap agreements to manage the exposure of the portfolio to increases in market interest rates by hedging a portion of our variable-rate debt against increases in interest rates. There were no interest rate
caps outstanding during 2008, 2007 and 2006.

Liquidity and Capital Resources

Our sources of liquidity are the revolving lines of credit with Citibank and DZ Bank, unfunded commitments from the SBA for long-term debentures that are
issued to or guaranteed by the SBA, loan amortization and prepayments, private issuances of debt securities, and participations or sales of loans to third parties. As a RIC, we are required to distribute at least 90% of our investment company
taxable income; consequently, we have primarily relied upon external sources of funds to finance growth. Trust IIs $225,000,000 line with Citibank had availability of $3,467,000 as of December 31, 2008, and the Trust IIIs
$200,000,000 revolving line of credit with DZ Bank has $106,675,000 availability. Medallion Capital has $8,500,000 of additional funding commitments with the SBA, which requires capital contributions from us of up to $4,250,000. Since SBA financing
subjects its recipients to certain regulations, we will seek funding at the subsidiary level to maximize its benefits. Lastly, $13,000,000 was available under revolving credit agreements with commercial banks, and approximately $240,000 was
available under the companys margin loans.

Additionally, Medallion Bank, our wholly-owned, unconsolidated portfolio company has
access to independent sources of funds for our business originated there, primarily through brokered certificates of deposit. Medallion Bank also has $25,000,000 available under Fed Funds lines with several commercial banks. In addition, Medallion
Bank, as a non-RIC subsidiary of ours, is allowed to retain all earnings in the business to fund future growth.

The components of our debt
were as follows at December 31, 2008. See note 5 to the consolidated financial statements on page F-17 for details of the contractual terms of our borrowings.



|                                                 |  |         |         |            |     |   |          |      |  
|------------------------------------------------ |  | ------- | ------- | ---------- | --- | - | -------- | ---- | -
|(Dollars in thousands)                           |  | Balance |         | Percentage |     |   | Rate (1) |     
|Revolving lines of credit                        |  | $       | 314,858 |            | 68  | % |          | 3.28 | %
|SBA debentures                                   |  |         | 88,250  |            | 19  |   |          | 6.10 |  
|Preferred securities                             |  |         | 33,000  |            | 7   |   |          | 7.68 |  
|Notes payable to banks                           |  |         | 26,542  |            | 6   |   |          | 4.64 |  
|                                                 |  |         |         |            |     |   |          |      |  
|Total outstanding debt                           |  | $       | 462,650 |            | 100 | % |          | 4.20 |  
|                                                 |  |         |         |            |     |   |          |      |  
|Certificates of deposit at Medallion Bank        |  |         | 366,408 |            |    |   |          | 3.85 | %
|                                                 |  |         |         |            |     |   |          |      |  
|Total outstanding debt, including Medallion Bank |  | $       | 829,058 |            |    |   |          | 4.04 |  
|                                                 |  |         |         |            |     |   |          |      |  



|(1) | Weighted average contractual rate as of December 31, 2008.
|--- | ----------------------------------------------------------



48



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##### Table of Contents

Our contractual obligations expire on or mature at various dates through September 2037. The following
table shows all contractual obligations at December 31, 2008.



|                                          |  |                           |         |            |   |             |  |            |         |             |   |                  |  |       |         |  |   |        |  |   |        
|----------------------------------------- |  | ------------------------- | ------- | ---------- | - | ----------- |  | ---------- | ------- | ----------- | - | ---------------- |  | ----- | ------- |  | - | ------ |  | - | -------
|                                          |  | a. Payments due by period
|(Dollars in thousands)                    |  | Less than1 year           |         | 1 2 years |   | 2  3 years |  | 3 4 years |         | 4  5 years |   | More than5 years |  | Total
|Revolving lines of credit                 |  | $                         | 221,533 |            | $ |            |  | $          |        |             | $ |                 |  | $     | 93,325  |  | $ |       |  | $ | 314,858
|SBA debentures                            |  |                           |        |            |   |            |  |            | 17,985  |             |   | 13,500           |  |       | 19,450  |  |   | 37,315 |  |   | 88,250 
|Preferred securities                      |  |                           |        |            |   |            |  |            |        |             |   |                 |  |       |        |  |   | 33,000 |  |   | 33,000 
|Notes payable to banks                    |  |                           | 15,326  |            |   | 326         |  |            | 10,890  |             |   |                 |  |       |        |  |   |       |  |   | 26,542 
|                                          |  |                           |         |            |   |             |  |            |         |             |   |                  |  |       |         |  |   |        |  |   |        
|Total                                     |  | $                         | 236,859 |            | $ | 326         |  | $          | 28,875  |             | $ | 13,500           |  | $     | 112,775 |  | $ | 70,315 |  | $ | 462,650
|                                          |  |                           |         |            |   |             |  |            |         |             |   |                  |  |       |         |  |   |        |  |   |        
|Certificates of deposit at Medallion Bank |  |                           | 229,863 |            |   | 54,986      |  |            | 81,559  |             |   |                 |  |       |        |  |   |       |  |   | 366,408
|                                          |  |                           |         |            |   |             |  |            |         |             |   |                  |  |       |         |  |   |        |  |   |        
|Total, including Medallion Bank           |  | $                         | 466,722 |            | $ | 55,312      |  | $          | 110,434 |             | $ | 13,500           |  | $     | 112,775 |  | $ | 70,315 |  | $ | 829,058
|                                          |  |                           |         |            |   |             |  |            |         |             |   |                  |  |       |         |  |   |        |  |   |        

We value our portfolio at fair value as determined in good faith by management and approved by the
Board of Directors in accordance with our valuation policy. Unlike certain lending institutions, we are not permitted to establish reserves for loan losses. Instead, we must value each individual investment and portfolio loan on a quarterly basis.
We record unrealized depreciation on investments and loans when we believe that an asset has been impaired and full collection is unlikely. We record unrealized appreciation on equities if we have a clear indication that the underlying portfolio
company has appreciated in value and, therefore, our equity investment has also appreciated in value. Without a readily ascertainable market value, the estimated value of our portfolio of investments and loans may differ significantly from the
values that would be placed on the portfolio if there existed a ready market for the investments. We adjust the valuation of the portfolio quarterly to reflect managements estimate of the current fair value of each investment in the portfolio.
Any changes in estimated fair value are recorded in our statement of operations as net unrealized appreciation (depreciation) on investments. Our investment in Medallion Bank, as a wholly-owned portfolio investment, is also subject to quarterly
assessments of its fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value. As a result of this valuation process, we used Medallion
Banks actual results of operations as the best estimate of changes in fair value, and recorded the result as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable
factors could change these conclusions in the future.

In addition, the illiquidity of our loan portfolio and investments may adversely
affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in the portfolio, the proceeds of such
liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate at which we borrow funds and the rate
at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply rising interest rates, our cost of funds
would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing activities. Our long-term fixed-rate
investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such
techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the balance sheet were to remain
constant and no actions were taken to alter the existing interest rate sensitivity, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would have negatively impacted net increase in net assets
resulting from operations as of December 31, 2008 by approximately $1,702,000 on an annualized basis, compared to a positive impact of $374,000 at December 31, 2007, and the impact of such an immediate increase of 1% over a one year period
would have been ($2,831,000) at December 31, 2008, compared to ($2,895,000) for December 31, 2007. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not adjust for potential
changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net increase in net assets resulting from operations in a particular quarter or for the year taken as a whole.
Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

We continue to work with investment banking firms and other financial intermediaries to investigate the viability of a number of other financing options which include, among others, the sale or spin off certain assets or divisions, the
development of a securitization conduit program, and other independent financing for certain subsidiaries or asset classes. These financing options would also provide additional sources of funds for both external expansion and continuation of
internal growth.



49



---

##### Table of Contents

The following table illustrates sources of available funds for us and each of our subsidiaries, and
amounts outstanding under credit facilities and their respective end of period weighted average interest rates at December 31, 2008. See note 5 to the consolidated financial statements for additional information about each credit facility.



|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|-------------------------------------------------------------------- |  | ---------- | ------ | - | --- | - | ----------- | --- |  | - | --------- | - | ---- | - | ----- | ---- | - | --------- | ----- |  | - | ---------- | - |  | - | ----------- | - |  | - | ---------- | -
|(Dollars in thousands)                                               |  | TheCompany |        |   | MFC |   |             | MCI |  |   | MBC       |   | FSVC |   |       | UTAH |   |           | Total |  |   | 12/31/2007 |  
|Cash                                                                 |  | $          | 15,955 |   |     | $ | 2,754       |     |  | $ | 2,869     |   |      | $ | 4,817 |      | $ | 5,680     |       |  | $ |           |   |  | $ | 32,075      |   |  | $ | 33,454     |  
|Bank loans (1)                                                       |  |            | 20,000 |   |     |   | 8,000       |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 28,000      |   |  |   | 38,000     |  
|Amounts undisbursed                                                  |  |            | 5,000  |   |     |   | 8,000       |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 13,000      |   |  |   | 24,000     |  
|Amounts outstanding                                                  |  |            | 15,000 |   |     |   | 11,542      |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 26,542      |   |  |   | 20,850     |  
|Average interest rate                                                |  |            | 3.61   | % |     |   | 5.59        | %   |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 4.47        | % |  |   | 6.81       | %
|Maturity                                                             |  |            | 7/09   |   |     |   | 8/09-7/11   |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 7/09-7/11   |   |  |   | 6/08-6/10  |  
|Preferred Securities(2)                                              |  |            | 33,000 |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 33,000      |   |  |   | 33,000     |  
|Average interest rate                                                |  |            | 7.68   | % |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 7.68        | % |  |   | 7.68       | %
|Maturity                                                             |  |            | 9/37   |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 9/37        |   |  |   | 9/37       |  
|Lines of Credit                                                      |  |            |       |   |     |   | 425,000     |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 425,000     |   |  |   | 625,000    |  
|Amounts undisbursed                                                  |  |            |       |   |     |   | 110,142     |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 110,142     |   |  |   | 213,551    |  
|Amounts outstanding                                                  |  |            |       |   |     |   | 314,858     |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 314,858     |   |  |   | 411,449    |  
|Average interest rate                                                |  |            |       |   |     |   | 3.28        | %   |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 3.28        | % |  |   | 5.58       | %
|Maturity                                                             |  |            |       |   |     |   | 11/09-12/13 |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 11/09-12/13 |   |  |   | 9/08-12/09 |  
|Margin loan                                                          |  |            |       |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   |            |   |  |   |           |  
|Average interest rate                                                |  |            |       | % |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   |            | % |  |   |           | %
|Maturity                                                             |  |            | N/A    |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   |           |   |  |   | N/A         |   |  |   | N/A        |  
|SBA debentures                                                       |  |            |       |   |     |   |            |     |  |   | 46,750    |   |      |   |      |      |   | 50,000    |       |  |   |           |   |  |   | 96,750      |   |  |   | 96,750     |  
|Amounts undisbursed                                                  |  |            |       |   |     |   |            |     |  |   | 8,500     |   |      |   |      |      |   |          |       |  |   |           |   |  |   | 8,500       |   |  |   | 19,500     |  
|Amounts outstanding                                                  |  |            |       |   |     |   |            |     |  |   | 38,250    |   |      |   |      |      |   | 50,000    |       |  |   |           |   |  |   | 88,250      |   |  |   | 77,250     |  
|Average interest rate                                                |  |            |       |   |     |   |            |     |  |   | 6.10      | % |      |   |      |      |   | 6.09      | %     |  |   |           |   |  |   | 6.10        | % |  |   | 6.05       | %
|Maturity                                                             |  |            |       |   |     |   |            |     |  |   | 9/11-9/18 |   |      |   |      |      |   | 9/11-3/19 |       |  |   |           |   |  |   | 9/11-3/19   |   |  |   | 9/11-3/16  |  
|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|Total cash and amounts remaining undisbursed under credit facilities |  | $          | 20,955 |   |     | $ | 120,896     |     |  | $ | 11,369    |   |      | $ | 4,817 |      | $ | 5,680     |       |  | $ |           |   |  | $ | 163,717     |   |  | $ | 290,505    |  
|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|Total debt outstanding                                               |  | $          | 48,000 |   |     | $ | 326,400     |     |  | $ | 38,250    |   |      | $ |      |      | $ | 50,000    |       |  | $ |           |   |  | $ | 462,650     |   |  | $ | 542,549    |  
|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|Including Medallion Bank                                             |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|Cash and cash equivalents                                            |  |            |       |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  | $ | 9,401      |   |  | $ | 9,401       |   |  | $ | 17,025     |  
|Certificates of deposit                                              |  |            |       |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   | 366,408    |   |  |   | 366,408     |   |  |   | 299,083    |  
|Average interest rate                                                |  |            |       |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   | 3.85       | % |  |   | 3.85        | % |  |   | 4.85       | %
|Maturity                                                             |  |            |       |   |     |   |            |     |  |   |          |   |      |   |      |      |   |          |       |  |   | 1/09-11/11 |   |  |   | 1/09-11/11  |   |  |   | 1/08-10/10 |  
|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|Total cash and amounts remaining undisbursed under credit facilities |  | $          | 20,955 |   |     | $ | 120,896     |     |  | $ | 11,369    |   |      | $ | 4,806 |      | $ | 5,680     |       |  | $ | 9,401      |   |  | $ | 173,107     |   |  | $ | 307,530    |  
|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  
|Total debt outstanding                                               |  | $          | 48,000 |   |     | $ | 326,400     |     |  | $ | 38,250    |   |      | $ |      |      | $ | 50,000    |       |  | $ | 366,408    |   |  | $ | 829,058     |   |  | $ | 841,632    |  
|                                                                     |  |            |        |   |     |   |             |     |  |   |           |   |      |   |       |      |   |           |       |  |   |            |   |  |   |             |   |  |   |            |  



|(1) | In June 2008, the $10,000 revolving note agreement with Citibank matured.
|--- | -------------------------------------------------------------------------



|(2) | In December 2008, a new $200,000 five-year, revolving line of credit with DZ Bank was established, at the lower of the commercial paper rate, at 30 day LIBOR plus 0.75%, or 90 day
LIBOR plus 0.50%; plus 0.95%. Also, the credit line with Citibank was extended to November 2009, at a reduced commitment level of $225,000 at 0.82% over the commercial paper rate, and the Merrill Lynch facility was paid off.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During 2008, FSVC and MCI issued $6,000 and $5,000 of debentures to the SBA, $3,000 of which bears interest until the March 2009 pooling at 5.70%, at which time they will be pooled,
repriced, and termed until March 2019.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Loan amortization, prepayments, and sales also provide a source of funding for us.
Prepayments on loans are influenced significantly by general interest rates, medallion loan market values, economic conditions, and competition.

Based on current market conditions, we believe Citibank may not extend the credit facility beyond its current maturity date in November 2009. We have available liquidity of $106,675,000 under our revolving credit agreement with DZ Bank as
of December 31, 2008. We also generate liquidity through deposits generated at Medallion Bank, borrowing arrangements with other banks, and through the issuance of SBA debentures, as well as from cash flow from operations. In addition, we may
choose to participate a greater portion of our loan portfolio to third parties. We are actively seeking additional sources of liquidity, including sources of liquidity to repay our borrowings under the Citibank facility; however, given current
market conditions, we cannot assure you that we



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will be able to secure additional liquidity on terms favorable to us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to
conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so, and at prices which may be below the net book value of such assets in order for us to repay
indebtedness on a timely basis. Also, Medallion Bank is not a RIC, and therefore is able to retain earnings to finance growth.

Recently
Issued Accounting Standards

In October 2008, the FASB issued FSP FAS 157-3,Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active. The FSP clarifies the application of SFAS No. 157, Fair Value Measurement, and provides an example to illustrate key considerations in determining the fair value of
a financial asset when the market for that financial asset is not active. The FSP is effective upon issuance, including for prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation
technique or its application should be accounted for as a change in accounting estimate; however, the disclosure provisions for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its
application. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In
April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FAS 142-3), which amends the factors that should be considered in developing renewal or extension assumptions
used for purpose of determining the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FAS 142-3 is intended to improve the consistency between the
useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), Business Combinations, and other US generally accepted accounting
principles. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier application is not permitted. The Company believes the impact of adopting FAS 142-3 will not have a material effect on the Consolidated
Financial Statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the Companys financial statements; how derivative instruments and related hedged items are
accounted for; and how derivative instruments and related hedged items affect the Companys financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued and for fiscal years and interim
periods after November 15, 2008. Early application is permitted. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary by clarifying that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as a component of equity. It requires that changes in a parents ownership interest while the parent retains its controlling interest be accounted for as equity transactions and any retained
noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and shall be applied prospectively, except
for the presentation and disclosure requirements which shall be applied retrospectively. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations which establishes principles and requirements on
how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date fair value, as well as the recognition and measurement
of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated
with the business combination will generally be expensed as incurred. SFAS No. 141R is effective prospectively to business combinations in fiscal years beginning on or after December 15, 2008. We do not believe that this pronouncement will
have an impact on our financial condition or results of operations.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Our business activities contain elements of risk. We consider the principal types of risk to be fluctuations in interest rates and portfolio valuations. We consider the management of risk essential to conducting our businesses. Accordingly,
our risk management



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systems and procedures are designed to identify and analyze our risks, to set appropriate policies and limits, and to continually monitor these risks and
limits by means of reliable administrative and information systems and other policies and programs.

We value our portfolio at fair value
as determined in good faith by management and approved by the Board of Directors in accordance with our valuation policy. Unlike certain lending institutions, we are not permitted to establish reserves for loan losses. Instead, we must value each
individual investment and portfolio loan on a quarterly basis. We record unrealized depreciation on investments and loans when we believe that an asset has been impaired and full collection is unlikely. We record unrealized appreciation on equities
if there is a clear indication that the underlying portfolio company has appreciated in value and, therefore, our equity investment has also appreciated in value. Without a readily ascertainable market value, the estimated value of our portfolio of
investments and loans may differ significantly from the values that would be placed on the portfolio if there existed a ready market for the investments. We adjust the valuation of the portfolio quarterly to reflect managements estimate of the
current fair value of each investment in the portfolio. Any changes in estimated fair value are recorded in our statement of operations as net unrealized appreciation (depreciation) on investments. Our investment in Medallion Bank, as a wholly owned
portfolio investment, is also subject to quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value, including
various regulatory restrictions that were established at Medallion Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as on the ability to transfer industrial bank charters. As a result of
this valuation process, we used Medallion Banks actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in
these restrictions and other applicable factors could change these conclusions in the future.

In addition, the illiquidity of our loan
portfolio and investments may adversely affect our ability to dispose of loans at times when it may be advantageous for us to liquidate such portfolio or investments. In addition, if we were required to liquidate some or all of the investments in
the portfolio, the proceeds of such liquidation may be significantly less than the current value of such investments. Because we borrow money to make loans and investments, our net operating income is dependent upon the difference between the rate
at which we borrow funds and the rate at which we invest these funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our interest income. In periods of sharply
rising interest rates, our cost of funds would increase, which would reduce our net operating income before net realized and unrealized gains. We use a combination of long-term and short-term borrowings and equity capital to finance our investing
activities. Our long-term fixed-rate investments are financed primarily with short-term floating-rate debt, and to a lesser extent by term fixed-rate debt. We may use interest rate risk management techniques in an effort to limit our exposure to
interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. We have analyzed the potential impact of changes in interest rates on net interest income. Assuming that the
balance sheet were to remain constant and no actions were taken to alter the existing interest rate sensitivity, and including the impact on Medallion Bank, a hypothetical immediate 1% increase in interest rates would have negatively impacted net
increase in net assets resulting from operations as of December 31, 2008 by approximately $1,702,000 on an annualized basis, compared to a positive impact of $374,000 at December 31, 2007, and the impact of such an immediate increase of 1%
over a one year period would have been ($2,831,000) at December 31, 2008, compared to ($2,895,000) for December 31, 2007. Although management believes that this measure is indicative of our sensitivity to interest rate changes, it does not
adjust for potential changes in credit quality, size, and composition of the assets on the balance sheet, and other business developments that could affect net increase in net assets resulting from operations in a particular quarter or for the year
taken as a whole. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Reference is made to the financial statements set forth under Item 15 (A) (1) in this Annual Report on Form 10-K, which financial statements are incorporated herein by reference in response to this Item 8.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
|------- | -------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Disclosure Controls and Procedures



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As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive
Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal year covered by this annual report. As a result of this evaluation, we have concluded that our disclosure
controls and procedures were effective as of December 31, 2008.

Changes in Internal Control over Financial Reporting

As required by Rule 13a-15(d) under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated
our internal control over financial reporting to determine whether any changes occurred during the 2008 fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, and
have concluded that there have been no changes that occurred during the 2008 fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Managements Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under
the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:



| |  |  | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material
effect on the financial statements.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

Our management assessed the effectiveness of our internal control over financial reporting as of
December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment
and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2008.

We believe that the consolidated financial statements included in this report fairly represent our consolidated financial position and consolidated results of operations for all periods presented.

Our Independent Registered Public Accounting Firm, Weiser LLP, has audited and issued a report on managements assessment of our internal control
over financial reporting. The report of Weiser LLP appears below.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Medallion Financial Corp.

We have audited Medallion Financial Corp. and subsidiaries (the Company) internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control
 Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control, based on
the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A Companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Companys internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the
Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based
on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company including the consolidated schedule of
investments, as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in net assets, cash flows, and the selected financial ratios and other data for each of the three years in the three-year period ended
December 31, 2008, and our report dated March 13, 2009 expressed an unqualified opinion on those consolidated financial statements.

Weiser LLP

New York, New York

March 13, 2009



|ITEM 9B. | OTHER INFORMATION
|-------- | -----------------

None.



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PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
|-------- | -------------------------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 30, 2009 for its fiscal year 2009 Annual Meeting of Shareholders under the captions Our Directors and Executive Officers and
Corporate Governance.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

Incorporated by reference
from our Definitive Proxy Statement expected to be filed by April 30, 2009 for our fiscal year 2009 Annual Meeting of Shareholders under the caption Executive Compensation.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 30, 2009 for our fiscal year 2009 Annual Meeting of
Shareholders under the captions Stock Ownership of Certain Beneficial Owners and Management and Equity Compensation Plan Information.



|ITEM 13. | CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|-------- | ----------------------------------------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 30, 2009 for our fiscal year 2009 Annual Meeting of Shareholders under the caption Certain Relationships and
Related Party Transactions.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Incorporated by reference from our Definitive Proxy Statement expected to be filed by April 30, 2009 for our fiscal year 2009 Annual Meeting of Shareholders under the caption Principal Accountant Fees and Services.

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



| | (A) | 1. FINANCIAL STATEMENTS
| | --- | -----------------------

The consolidated financial
statements of Medallion Financial Corp. and the Report of Independent Public Accountants thereon are included as set forth on the Index to Financial Statements on F-1.

2. FINANCIAL STATEMENT SCHEDULES

See Index to Financial Statements on F-1.

3. EXHIBITS



|       |  |                                                                                                                                                                                                                                                                                                                                       
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                                                                                                                                                                           
|       | 
|2.1    |  | Agreement and Plan of Merger, dated September 3, 2004, between Medallion Financial Corp., Medallion Taxi Media, Inc., Clear Channel Communications, Inc., and Checker Acquisition Corp. Filed as
Exhibit 2.1 to the Current Report on Form 8-K, filed on September 10, 2004 (File No. 814-00188) and incorporated by reference herein.
|       | 
|2.2    |  | Amended and Restated Asset Purchase Agreement, dated October 17, 2005, by and among Medallion Financial Corp., Business Lenders, LLC, and BLL Acquisition LLC. Filed as Exhibit 2.1 to the Current
Report on Form 8-K, filed on October 18, 2005 (File No. 814-00188) and incorporated by reference herein.                           



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|       |  |                                                                                                                                                                                                                                                                                                                                                                                         
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|3.1(a) |  | Restated Medallion Financial Corp. Certificate of Incorporation. Filed as Exhibit 2(a) to the Companys Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference
herein.                                                                                                                                                                                    
|       | 
|3.1(b) |  | Amendment to Restated Certificate of Incorporation. Filed as Exhibit 3.1.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 (File No. 814-00188) and incorporated
by reference herein.                                                                                                                                                                 
|       | 
|3.2    |  | Restated By-Laws. Filed as Exhibit (b) to the Companys Registration Statement on Form N-2 (File No. 333-1670) and incorporated by reference herein.                                                                                                                                                                                                                                    
|       | 
|4.1    |  | Fifth Amended and Restated Promissory Note, dated June 27, 2008, by Taxi Medallion Loan Trust I, in favor of Merrill Lynch Commercial Finance Corp. Filed as Exhibit 4.1 to the Current Report on
Form 8-K filed on July 1, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                             
|       | 
|4.2    |  | Amended and Restated Revolving Secured Line of Credit Promissory Note, dated March 6, 2006, by Medallion Funding Corp., in favor of Atlantic Bank of New York. Filed as Exhibit 4.1 to the Current
Report on Form 8-K filed on March 9, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                 
|       | 
|4.3    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated August 1, 2006, by Medallion Funding Corp., in favor of Atlantic Bank of New York. Filed as Exhibit 4.1
to the Current Report on Form 8-K filed on August 4, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                  
|       | 
|4.4    |  | Amendment No. 2 to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated January 16, 2007, by Medallion Funding Corp., in favor of New York Commercial Bank, formerly known
as Atlantic Bank of New York. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on January 17, 2007 (File No. 814-00188) and incorporated by reference herein.            
|       | 
|4.5    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated March 22, 2007, by Medallion Funding Corp., in favor of Atlantic Bank. Filed as Exhibit 4.1 to the
Current Report on Form 8-K filed on April 18, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                              
|       | 
|4.6    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of July 26, 2007, by Medallion Funding Corp., in favor of Atlantic Bank. Filed as Exhibit 4.2 to the
Current Report on Form 8-K filed on August 3, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                         
|       | 
|4.7    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of September 26, 2007, by Medallion Funding Corp., in favor of Atlantic Bank. Filed as Exhibit 4.1 to
the Current Report on Form 8-K filed on September 27, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                
|       | 
|4.8    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of July 15, 2008, by Medallion Funding Corp., in favor of New York Commercial Bank. Filed as Exhibit
4.1 to the Current Report on Form 8-K filed on July 22, 2008 (File No. 814-00188) and incorporated by reference herein.                                                               
|       | 
|4.9    |  | Amendment to Amended and Restated Revolving Secured Line of Credit Promissory Note, dated as of December 12, 2008, by Medallion Funding Corp., in favor of New York Commercial Bank. Filed as
Exhibit 4.1 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                       
|       | 
|4.10   |  | Substitute Revolving Credit Note, dated as of February 2, 2009, by Medallion Financial Corp., in favor of Sterling National Bank. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on
February 4, 2009 (File No. 814-00188) and incorporated by reference herein.                                                                                                           
|       | 
|4.11   |  | Amended and Restated Promissory Note, dated November 29, 2007, by Taxi Medallion Loan Trust II, in favor of Citicorp North America, Inc. (the Managing Agent) for the benefit of the
lenders in the Managing Agents related lender group. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on December 4, 2007 (File No. 814-00188) and incorporated by reference herein.



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|      |  |                                                                                                                                                                                                                                                                                                                                                 
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|4.12  |  | Fixed/Floating Rate Junior Subordinated Note, dated June 7, 2007, by Medallion Financial Corp., in favor of Medallion Financing Trust I. Filed as Exhibit 4.1 to the Current Report on Form
8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                                                               
|      | 
|4.13  |  | Master Note, dated September 19, 2007, by Medallion Funding Corp., in favor of Citibank, N.A. Filed as Exhibit 4.1 to the Current Report on Form 8-K filed on September 21, 2007 (File No.
814-00188) and incorporated by reference herein.                                                                                                     
|      | 
|10.1  |  | First Amended and Restated Employment Agreement, between Medallion Financial Corp. and Alvin Murstein dated May 29, 1998. Filed as Exhibit 10.19 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (File No. 814-00188) and incorporated by reference herein.*                                                      
|      | 
|10.2  |  | First Amended and Restated Employment Agreement, between Medallion Financial Corp. and Andrew Murstein dated May 29, 1998. Filed as Exhibit 10.20 to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998 (File No. 814-00188) and incorporated by reference herein.*                                                     
|      | 
|10.3  |  | Employment Agreement, dated August 3, 2006, by and between Medallion Financial Corp. and Michael Kowalsky. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on August 4, 2006 (File
No. 814-00188) and incorporated by reference herein.*                                                                                          
|      | 
|10.4  |  | Medallion Financial Corp. Amended and Restated 1996 Stock Option Plan. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002 (File No.
814-00188) and incorporated by reference herein.*                                                                                                      
|      | 
|10.5  |  | Medallion Financial Corp. Amended and Restated 1996 Non-Employee Directors Stock Option Plan. Filed as Exhibit A to the Companys Request Form on Amendment and the Order by the Commission
approving the plan as of April 3, 2000 (File No. 812-11800) and incorporated by reference herein.*                                                  
|      | 
|10.6  |  | 2006 Employee Stock Option Plan. Filed as Exhibit II to our definitive proxy statement for our 2006 Annual Meeting of Shareholders filed on April 28, 2006 (File No. 814-00188) and incorporated
by reference herein.*                                                                                                                          
|      | 
|10.7  |  | 2006 Non-Employee Director Stock Option Plan. Filed as Exhibit I to our definitive proxy statement for our 2006 Annual Meeting of Shareholders filed on April 28, 2006 (File No. 814-00188) and
incorporated by reference herein.*                                                                                                              
|      | 
|10.8  |  | Non-Employee Director Compensation Summary Sheet. Filed herewith.*                                                                                                                                                                                                                                                                              
|      | 
|10.9  |  | Indenture of Lease, dated October 31, 1997, by and between Sage Realty Corporation, as Agent and Landlord, and Medallion Financial Corp., as Tenant. Filed as Exhibit 10.64 to the Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 (File No. 814-00188) and incorporated by reference herein.                            
|      | 
|10.10 |  | First Amendment of Lease, dated September 6, 2005, by and between Medallion Financial Corp. and Sage Realty Corporation. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on
September 12, 2005 (File No. 814-00188) and incorporated by reference herein.                                                                         
|      | 
|10.11 |  | Amended and Restated Loan and Security Agreement dated as of September 13, 2003, by and among Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 814-00188) and incorporated by reference herein.    
|      | 
|10.12 |  | Amendment No. 1 to Amended and Restated Loan and Security Agreement, dated August 12, 2004, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit
10.9 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 814-00188) and incorporated by reference herein.
|      | 
|10.13 |  | Amendment No. 2 to Amended and Restated Loan and Security Agreement, dated January 7, 2005, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit
10.1 to the Current Report on Form 8-K filed on January 11, 2005 (File No. 814-00188) and incorporated by reference herein.                  



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.14 |  | Amendment No. 3 to Amended and Restated Loan and Security Agreement, dated January 9, 2006, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as
Exhibit 10.1 to the Current Report on Form 8-K filed on January 11, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                            
|      | 
|10.15 |  | Amendment No. 4 to Amended and Restated Loan and Security Agreement, dated September 5, 2006, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as
Exhibit 10.1 to the Current Report on Form 8-K filed on September 8, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                         
|      | 
|10.16 |  | Amendment No. 5 to Amended and Restated Loan and Security Agreement, dated December 19, 2006, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as
Exhibit 10.1 to the Current Report on Form 8-K filed on December 21, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                         
|      | 
|10.17 |  | Amendment No. 7 to Amended and Restated Loan and Security Agreement, dated June 19, 2008, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit
10.1 to the Current Report on Form 8-K filed on June 23, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                 
|      | 
|10.18 |  | Second Omnibus Amendment and Agreement, dated June 27, 2008, by and between Taxi Medallion Loan Trust I and Merrill Lynch Commercial Finance Corp. Filed as Exhibit 10.1 to the Current Report on
Form 8-K filed on July 1, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                               
|      | 
|10.19 |  | Loan and Sale Contribution Agreement, dated as of September 13, 2002, between Medallion Financial Corp. and Taxi Medallion Loan Trust I. Filed as Exhibit 10.5 to the Current Report on Form 8-K
filed on September 18, 2002 (File No. 814-00188) and incorporated by reference herein.                                                                                                                   
|      | 
|10.20 |  | Loan Sale and Exchange Agreement, dated as of September 13, 2002, between Medallion Financial Corp. and Medallion Funding Corp. Filed as Exhibit 10.6 to the Current Report on Form 8-K filed on
September 18, 2002 (File No. 814-00188) and incorporated by reference herein.                                                                                                                            
|      | 
|10.21 |  | Servicing Agreement, by and among Taxi Medallion Loan Trust I, Medallion Funding Corp., and Merrill Lynch Bank USA, dated as of September 13, 2002. Filed as Exhibit 10.7 to the Current Report on
Form 8-K filed on September 18, 2002 (File No. 814-00188) and incorporated by reference herein.                                                                                                        
|      | 
|10.22 |  | Amendment to Servicing Agreement, by and among Taxi Medallion Loan Trust I, Medallion Funding Corp. and Merrill Lynch Commercial Finance Corp. as successor in interest to Merrill Lynch Bank USA,
dated as of September 12, 2003. Filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 (File No. 814-00188) and incorporated by reference herein.
|      | 
|10.22 |  | Amendment No. 2 to Servicing Agreement, by and among Taxi Medallion Loan Trust I, Medallion Funding Corp., and Merrill Lynch Commercial Finance Corp. as successor in interest to Merrill Lynch
Bank USA, dated as of September 1, 2004. Filed as Exhibit 10.15 to the Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (File No. 814-00188) and incorporated by reference herein.  
|      | 
|10.23 |  | Custodial Agreement, dated as of September 13, 2002, among the lenders thereto, Taxi Medallion Loan Trust I, Medallion Funding Corp., and Wells Fargo Bank Minnesota, N.A. Filed as Exhibit 10.8
to the Current Report on Form 8-K filed on September 18, 2002 (File No. 814-00188) and incorporated by reference herein.                                                                                 
|      | 
|10.24 |  | Amended and Restated Trust Agreement, dated as of September 13, 2002, by and between Medallion Funding Corp. and Wachovia Trust Company, N.A. Filed as Exhibit 10.9 to the Current Report on Form
8-K filed on September 18, 2002 (File No. 814-00188) and incorporated by reference herein.                                                                                                              
|      | 
|10.25 |  | Loan and Security Agreement, dated April 26, 2004, by and between Medallion Financial Corp. and Sterling National Bank. Filed herewith. Filed as Exhibit 10.18 to the Annual Report on Form 10-K
for the fiscal year ended December 31, 2005 (File No. 814-00188) and incorporated by reference herein.                                                                                                   



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.26 |  | First Amendment to Loan and Security Agreement, dated as of July 28, 2005, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.2 to the Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2005 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                        
|      | 
|10.27 |  | Second Amendment to Loan and Security Agreement, dated August 14, 2006, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report on Form
8-K filed on August 16, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                                                  
|      | 
|10.28 |  | Third Amendment to Loan and Security Agreement, dated July 31, 2007, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report on Form 8-K
filed on August 3, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                                                      
|      | 
|10.29 |  | Fourth Amendment to Loan and Security Agreement, dated December 31, 2008, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report on Form
8-K filed on January 3, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                                                
|      | 
|10.30 |  | Fifth Amendment to Loan and Security Agreement, dated August 28, 2008, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report on Form
8-K filed on August 29, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                                                   
|      | 
|10.31 |  | Sixth Amendment to Loan and Security Agreement, dated January 12, 2009, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report on Form
8-K filed on January 14, 2009 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                                                 
|      | 
|10.32 |  | Seventh Amendment to Loan and Security Agreement, dated February 2, 2009, by and between Medallion Financial Corp. and Sterling National Bank. Filed as Exhibit 10.1 to the Current Report on Form
8-K filed on February 4, 2009 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                                               
|      | 
|10.33 |  | Commitment Letter, dated March 1, 2006, by the Small Business Administration to Medallion Capital, Inc., accepted and agreed to by Medallion Capital, Inc. on March 8, 2006. Filed as Exhibit 10.1
to the Current Report on Form 8-K filed on March 9, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                                                    
|      | 
|10.34 |  | Commitment Letter, dated September 20, 2006, by the Small Business Administration to Freshstart Venture Capital Corp., accepted and agreed to by Freshstart Venture Capital Corp. on October 10,
2006. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on October 11, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                                                                                                                                       
|      | 
|10.35 |  | Loan and Security Agreement, dated as of December 19, 2006, among Taxi Medallion Loan Trust II, the persons from time to time party thereto as Conduit Lenders, the financial institutions from
time to time party thereto as Committed Lenders, the financial institutions from time to time party thereto as Managing Agents, and Citicorp North America, Inc., as Administrative Agent. Filed as Exhibit 10.2 to the Current Report on Form 8-K filed
on December 21, 2006 (File No. 814-00188) and incorporated by reference herein.                  
|      | 
|10.36 |  | Amendment No. 1 to Loan and Security Agreement, dated as of November 29, 2007, among Taxi Medallion Loan Trust II, the persons from time to time party thereto as Conduit Lenders, the financial
institutions from time to time party thereto as Committed Lenders, the financial institutions from time to time party thereto as Managing Agents, and Citicorp North America, Inc., as Administrative Agent. Filed as Exhibit 10.1 to the Current Report
on Form 8-K filed on December 4, 2007 (File No. 814-00188) and incorporated by reference herein.
|      | 
|10.37 |  | Amendment No. 2 to Loan and Security Agreement, dated as of November 26, 2008, among Taxi Medallion Loan Trust II, the persons from time to time party thereto as Conduit Lenders, the financial
institutions from time to time party thereto as Committed Lenders, the financial institutions from time to time party thereto as Managing Agents, and Citicorp North America, Inc., as Administrative Agent. Filed as Exhibit 10.1 to the Current Report
on Form 8-K filed on December 2, 2008 (File No. 814-00188) and incorporated by reference herein.



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.38 |  | Servicing Agreement, dated as of December 19, 2006, among Medallion Funding Corp., Taxi Medallion Loan Trust II, and Citicorp North America, Inc. Filed as Exhibit 10.3 to the Current Report
on Form 8-K filed on December 21, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                                       
|      | 
|10.39 |  | Loan Sale and Contribution Agreement, dated December 19, 2006, by and between Medallion Funding Corp. and Taxi Medallion Loan Trust II. Filed as Exhibit 10.4 to the Current Report on Form 8-K
filed on December 21, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                                                 
|      | 
|10.40 |  | Amended and Restated Trust Agreement, dated as of December 19, 2006, by and between Medallion Funding Corp. and U.S. Bank Trust, N.A. Filed as Exhibit 10.5 to the Current Report on Form 8-K
filed on December 21, 2006 (File No. 814-00188) and incorporated by reference herein.                                                                                                                   
|      | 
|10.41 |  | Junior Subordinated Indenture, dated as of June 7, 2007, between Medallion Financing Trust I and Wilmington Trust Company as trustee. Filed as Exhibit 10.1 to the Current Report on Form 8-K
filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                                                                       
|      | 
|10.42 |  | Amended and Restated Trust Agreement, dated as of June 7, 2007, among Medallion Financial Corp. as depositor, Wilmington Trust Company as property trustee and Delaware trustee and the
Administrative Trustees named therein. Filed as Exhibit 10.2 to the Current Report on Form 8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                              
|      | 
|10.43 |  | Purchase Agreement, dated as of June 7, 2007, among Medallion Financial Corp., Medallion Financing Trust I, and Merrill Lynch International. Filed as Exhibit 10.3 to the Current Report on Form
8-K filed on June 11, 2007 (File No. 814-00188) and incorporated by reference herein.                                                                                                                
|      | 
|10.44 |  | Security Agreement, dated September 19, 2007, by Medallion Funding Corp., in favor of Citibank, N.A. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on September 21, 2007 (File No.
814-00188) and incorporated by reference herein.                                                                                                                                                   
|      | 
|10.45 |  | Loan and Security Agreement, dated as of December 12, 2008, among Taxi Medallion Loan Trust III, Autobahn Funding Company LLC, as Lender, and DZ Bank AG Deutsche Zentral-Genossenschaftsbank,
Frankfurt am Main, as Agent. Filed as Exhibit 10.1 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                             
|      | 
|10.46 |  | Servicing Agreement, dated as of December 12, 2008, by and among Taxi Medallion Loan Trust III, Medallion Funding Corp., and DZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt am Main.
Filed as Exhibit 10.2 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                        
|      | 
|10.47 |  | Loan Sale and Contribution Agreement, dated December 12, 2008, by and between Medallion Funding Corp. and Taxi Medallion Loan Trust III. Filed as Exhibit 10.3 to the Current Report on Form 8-K
filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                                
|      | 
|10.48 |  | Amended and Restated Trust Agreement, dated as of December 12, 2008, by and between Medallion Funding Corp. and U.S. Bank Trust, N.A. Filed as Exhibit 10.4 to the Current Report on Form 8-K
filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                                                                                                                   
|      | 
|10.49 |  | Limited Recourse Guaranty, dated as of December 12, 2008, by Medallion Funding Corp., in favor of Autobahn Funding Company LLC, as Lender, and DZ Bank AG Deutsche Zentral-Genossenschaftsbank,
Frankfurt am Main, as Agent. Filed as Exhibit 10.5 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.                            
|      | 
|10.50 |  | Performance Guaranty, dated as of December 12, 2008, by Medallion Financial Corp., in favor of Taxi Medallion Loan Trust III, Autobahn Funding Company LLC, as Lender, and DZ Bank AG Deutsche
Zentral-Genossenschaftsbank, Frankfurt am Main, as Agent. Filed as Exhibit 10.6 to the Current Report on Form 8-K filed on December 16, 2008 (File No. 814-00188) and incorporated by reference herein.



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|     |  |                                                                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|12.1 |  | Computation of ratio of debt to equity. Filed herewith.                                                                                                                                                                                                                                               
|     | 
|16.1 |  | Letter, dated June 3, 2005, from Eisner LLP to the Securities and Exchange Commission, regarding change in certifying accountant of Medallion Financial Corp. Filed as Exhibit 16.1 to the Current
Report on Form 8-K filed on June 3, 2005 (File No. 814-00188) and incorporated by reference herein.
|     | 
|21.1 |  | List of Subsidiaries of Medallion Financial Corp. Filed herewith.                                                                                                                                                                                                                                     
|     | 
|23.1 |  | Consent of Weiser LLP, independent registered public accounting firm, related to reports on financial statements of Medallion Financial Corp. and Medallion Bank. Filed herewith.                                                                                                                     
|     | 
|31.1 |  | Certification of Alvin Murstein pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                        
|     | 
|31.2 |  | Certification of Larry D. Hall pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to section 302 of The Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                         
|     | 
|32.1 |  | Certification of Alvin Murstein pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                              
|     | 
|32.2 |  | Certification of Larry D. Hall pursuant to 18 USC. Section 1350, as adopted, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.                                                                                                                                               



|* | Compensatory plan or arrangement required to be identified pursuant to Item 15(a)(3) of this Annual Report on Form 10-K.
|- | ------------------------------------------------------------------------------------------------------------------------

IMPORTANT INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying
important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-K and those that may be made in the future by us or on
our behalf, we note that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-K were prepared by
management and are qualified by, and subject to, significant business, economic, competitive, regulatory, and other uncertainties and contingencies, all of which are difficult or impossible to predict, and many of which are beyond our control.
Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-K will be realized or that actual results will not be significantly higher or lower. The statements have not been audited by, examined by, compiled
by, or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-K should consider these facts in evaluating the information contained herein.
In addition, our business and operations are subject to substantial risks which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-K. The inclusion of the forward-looking statements contained in this Form
10-K should not be regarded as a representation by us or any other person that the forward-looking statements contained in this Form 10-K will be achieved. In light of the foregoing, readers of this Form 10-K are cautioned not to place undue
reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-K and other documents that we file from time to time with the Securities and Exchange Commission, including quarterly reports on
Form 10-Q and any current reports on Form 8-K must be considered by any of our investors or potential investors.



61



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange of Act of 1934, registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                          |  |                                     
|------------------------- |  | ------------------------------------
|MEDALLION FINANCIAL CORP.
|                         
|Date: March 13, 2009     
|                          | 
|By:                       |  | /s/ Alvin Murstein                  
|                          |  | Alvin Murstein                      
|                          |  | Chairman and Chief Executive Officer



62



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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                                  |  |                                                                                                |  |               
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | --------------
|Signatures                                        |  | Title                                                                                          |  | Date          
|                                                  |  |                                                                                               
|/s/ Alvin Murstein Alvin Murstein                 |  | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)   |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Larry D. Hall Larry D. Hall                   |  | Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Andrew M. Murstein Andrew M. Murstein         |  | President and Director                                                                         |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Henry L. Aaron Henry L. Aaron                 |  | Director                                                                                       |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Mario M. Cuomo Mario M. Cuomo                 |  | Director                                                                                       |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Henry D. Jackson Henry D. Jackson             |  | Director                                                                                       |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Stanley Kreitman Stanley Kreitman             |  | Director                                                                                       |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Frederick A. Menowitz Frederick A. Menowitz   |  | Director                                                                                       |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ David L. Rudnick David L. Rudnick             |  | Director                                                                                       |  | March 13, 2009
|                                                  |  |                                                                                               
|/s/ Lowell P. Weicker, Jr. Lowell P. Weicker, Jr. |  | Director                                                                                       |  | March 13, 2009



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MEDALLION FINANCIAL CORP.

INDEX TO FINANCIAL STATEMENTS



|                                                                                                       |  |     
|------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                       |  | Page
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  | F-2 
|                                                                                                       | 
|Consolidated Statements of Operations for the Years ended December 31, 2008, 2007, and 2006            |  | F-3 
|                                                                                                       | 
|Consolidated Balance Sheets as of December 31, 2008 and 2007                                           |  | F-4 
|                                                                                                       | 
|Consolidated Statements of Changes in Net Assets for the Years ended December 31, 2008, 2007, and
2006 |  | F-5 
|                                                                                                       | 
|Consolidated Statements of Cash Flows for the Years ended December 31, 2008, 2007, and 2006            |  | F-6 
|                                                                                                       | 
|Notes to Consolidated Financial Statements                                                             |  | F-7 
|                                                                                                       | 
|Consolidated Schedules of Investments as of December 31, 2008, and 2007                                |  | F-30
|                                                                                                       | 
|Medallion Bank Financial Statements                                                                    |  | F-34
|                                                                                                       | 
|Report of Independent Registered Public Accounting Firm                                                |  | F-35
|                                                                                                       | 
|Statements of Operations for the Years ended December 31, 2008, 2007, and 2006                         |  | F-36
|                                                                                                       | 
|Balance Sheets as of December 31, 2008 and 2007                                                        |  | F-37
|                                                                                                       | 
|Statements of Changes in Shareholders Equity for the Years ended December 31, 2008, 2007, and
2006    |  | F-38
|                                                                                                       | 
|Statements of Cash Flows for the Years ended December 31, 2008, 2007, and 2006                         |  | F-39
|                                                                                                       | 
|Notes to Financial Statements                                                                          |  | F-40



F-1



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Medallion Financial Corp.

We have audited the accompanying consolidated balance sheets of Medallion Financial Corp. and subsidiaries (the Company), including the consolidated schedule
of investments, as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in net assets, cash flows and the selected financial ratios and other data (see note 14) for each of the three years in the
three-year period ended December 31, 2008. These financial statements and selected financial ratios and other data are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements and selected financial ratios and other data based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our
opinion, the consolidated financial statements and the selected financial ratios and other data referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2008 and 2007, and
the consolidated results of their operations, changes in net assets, cash flows, and selected financial ratios and other data for each of the three years in the three-year period ended December 31, 2008, in conformity with US generally accepted
accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control-Integrated Framework Issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated March 13, 2009 expressed an unqualified opinion thereon.

Weiser LLP

New York, New York

March 13, 2009



F-2



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##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|-------------------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                                                         |  | Year Ended December 31, |           
|(Dollars in thousands, except per share data)                                                            |  | 2008                    |            |   | 2007 |   |            | 2006 | 
|Interest income on investments                                                                           |  | $                       | 44,914     |   |      | $ | 44,176     |      |  | $ | 38,032     |  
|Dividends and interest income on short-term investments(1)                                               |  |                         | 6,378      |   |      |   | 6,312      |      |  |   | 1,059      |  
|Medallion lease income                                                                                   |  |                         | 992        |   |      |   | 905        |      |  |   | 544        |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total investment income                                                                                  |  |                         | 52,284     |   |      |   | 51,393     |      |  |   | 39,635     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total interest expense(2)                                                                                |  |                         | 23,711     |   |      |   | 30,704     |      |  |   | 24,190     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net interest income                                                                                      |  |                         | 28,573     |   |      |   | 20,689     |      |  |   | 15,445     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total noninterest income                                                                                 |  |                         | 3,837      |   |      |   | 2,444      |      |  |   | 2,646      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Salaries and benefits                                                                                    |  |                         | 10,689     |   |      |   | 10,192     |      |  |   | 8,193      |  
|Professional fees                                                                                        |  |                         | 1,606      |   |      |   | 2,603      |      |  |   | 1,955      |  
|Occupancy expense                                                                                        |  |                         | 1,271      |   |      |   | 1,353      |      |  |   | 1,266      |  
|Other operating expenses                                                                                 |  |                         | 3,754      |   |      |   | 3,687      |      |  |   | 3,512      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Total operating expenses                                                                                 |  |                         | 17,320     |   |      |   | 17,835     |      |  |   | 14,926     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net investment income before income taxes(1) (3)                                                         |  |                         | 15,090     |   |      |   | 5,298      |      |  |   | 3,165      |  
|Income tax (provision) benefit                                                                           |  |                         |           |   |      |   |           |      |  |   |           |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net investment income after income taxes                                                                 |  |                         | 15,090     |   |      |   | 5,298      |      |  |   | 3,165      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net realized gains (losses) on investments                                                               |  |                         | (3,746     | ) |      |   | 14,172     |      |  |   | 3,080      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net change in unrealized appreciation (depreciation) on investments                                      |  |                         | 6,323      |   |      |   | (6,326     | )    |  |   | (591       | )
|Net change in unrealized appreciation (depreciation) on Medallion Bank and other controlled subsidiaries |  |                         | (2,419     | ) |      |   | 2,292      |      |  |   | 7,454      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net unrealized appreciation (depreciation) on investments                                                |  |                         | 3,904      |   |      |   | (4,034     | )    |  |   | 6,863      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net realized/unrealized gains on investments                                                             |  |                         | 158        |   |      |   | 10,138     |      |  |   | 9,943      |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets resulting from operations                                                     |  | $                       | 15,248     |   |      | $ | 15,436     |      |  | $ | 13,108     |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets resulting from operations per common share                                    |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic                                                                                                    |  | $                       | 0.87       |   |      | $ | 0.88       |      |  | $ | 0.76       |  
|Diluted                                                                                                  |  | $                       | 0.86       |   |      | $ | 0.87       |      |  | $ | 0.74       |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Dividends declared per share                                                                             |  | $                       | 0.76       |   |      | $ | 0.76       |      |  | $ | 0.70       |  
|                                                                                                         |  |                         |            |   |      |   |            |      |  |   |            |  
|Weighted average common shares outstanding                                                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Basic                                                                                                    |  |                         | 17,520,966 |   |      |   | 17,480,523 |      |  |   | 17,293,665 |  
|Diluted                                                                                                  |  |                         | 17,722,575 |   |      |   | 17,786,310 |      |  |   | 17,761,039 |  



|(1) | Includes $6,000 and $5,750 of dividend income in 2008 and 2007 from Medallion Bank.
|--- | -----------------------------------------------------------------------------------



|(2) | Average borrowings outstanding were $482,007, $492,022, and $425,062, and the related average borrowing costs were 4.92%, 6.24%, and 5.69% for the years ended December 31,
2008, 2007, and 2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Includes $2,493, $2,027, and $1,891 of net revenues received from Medallion Bank for the years ended December 31, 2008, 2007, and 2006 primarily for servicing fees, loan
origination fees, and expense reimbursements. See notes 4 and 11 for additional information.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes should be
read in conjunction with these consolidated financial statements.



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##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ----------------- | - | ---------- | -
|(Dollars in thousands, except per share data)                                                                                                                   |  | December 31, 2008 |            |   | December 31, 2007 |  
|Assets                                                                                                                                                          |  |                   |            |   |                   |   |            |  
|Medallion loans, at fair value                                                                                                                                  |  | $                 | 402,964    |   |                   | $ | 498,883    |  
|Commercial loans, at fair value (1)                                                                                                                             |  |                   | 89,611     |   |                   |   | 91,782     |  
|Investment in Medallion Bank and other controlled subsidiaries, at fair value                                                                                   |  |                   | 74,750     |   |                   |   | 57,501     |  
|Investment securities, at fair value                                                                                                                            |  |                   |           |   |                   |   |           |  
|Equity investments, at fair value                                                                                                                               |  |                   | 3,272      |   |                   |   | 4,880      |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Net investments ($347,517 at December 31, 2008and $458,102 at December 31, 2007 pledged as collateral under borrowing
arrangements)                             |  |                   | 570,597    |   |                   |   | 653,046    |  
|Cash and cash equivalents ($0 at December 31, 2008 and $852 at December 31, 2007 restricted as to use by lender)(2)                                             |  |                   | 32,075     |   |                   |   | 33,454     |  
|Accrued interest receivable                                                                                                                                     |  |                   | 2,149      |   |                   |   | 2,449      |  
|Fixed assets, net                                                                                                                                               |  |                   | 411        |   |                   |   | 558        |  
|Goodwill, net                                                                                                                                                   |  |                   | 5,008      |   |                   |   | 5,007      |  
|Other assets, net                                                                                                                                               |  |                   | 36,445     |   |                   |   | 26,748     |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total assets                                                                                                                                                    |  | $                 | 646,685    |   |                   | $ | 721,262    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Liabilities                                                                                                                                                     |  |                   |            |   |                   |   |            |  
|Accounts payable and accrued expenses                                                                                                                           |  | $                 | 7,074      |   |                   | $ | 4,203      |  
|Accrued interest payable                                                                                                                                        |  |                   | 2,015      |   |                   |   | 2,087      |  
|Funds borrowed                                                                                                                                                  |  |                   | 462,650    |   |                   |   | 542,549    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total liabilities                                                                                                                                               |  |                   | 471,739    |   |                   |   | 548,839    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Commitments and contingencies                                                                                                                                   |  |                   |           |   |                   |   |           |  
|Shareholders equity (net assets)                                                                                                                               |  |                   |            |   |                   |   |            |  
|Preferred stock (1,000,000 shares of $0.01 par value stock authorized - none outstanding)                                                                       |  |                   |           |   |                   |   |           |  
|Common stock (50,000,000 shares of $0.01 par value stock authorized  18,963,466 shares at December 31, 2008 and 18,902,416
shares at December 31, 2007 issued) |  |                   | 190        |   |                   |   | 189        |  
|Treasury stock at cost (1,414,242 shares at December 31, 2008 and 1,406,551 at December 31, 2007)                                                               |  |                   | (13,012    | ) |                   |   | (12,938    | )
|Capital in excess of par value                                                                                                                                  |  |                   | 178,482    |   |                   |   | 177,819    |  
|Accumulated undistributed net investment income (loss)                                                                                                          |  |                   | (1,650     | ) |                   |   | 2,739      |  
|Accumulated undistributed net realized gains on investments                                                                                                     |  |                   |           |   |                   |   |           |  
|Net unrealized appreciation on investments                                                                                                                      |  |                   | 10,936     |   |                   |   | 4,614      |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total shareholders equity (net assets)                                                                                                                         |  |                   | 174,946    |   |                   |   | 172,423    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Total liabilities and shareholders equity                                                                                                                      |  | $                 | 646,685    |   |                   | $ | 721,262    |  
|                                                                                                                                                                |  |                   |            |   |                   |   |            |  
|Number of common shares outstanding                                                                                                                             |  |                   | 17,549,224 |   |                   |   | 17,495,865 |  
|Net asset value per share                                                                                                                                       |  | $                 | 9.97       |   |                   | $ | 9.86       |  



|(1) | Includes a $3,100 loan to an entity which is majority owned by one of our controlled subsidiaries.
|--- | --------------------------------------------------------------------------------------------------



|(2) | Includes $100 in an FDIC insured deposit with Medallion Bank.
|--- | -------------------------------------------------------------

The accompanying notes should be read in conjunction with these consolidated financial statements.



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##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS



|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|---------------------------------------------------- |  | ----------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                     |  | Year Ended December 31, |           
|(Dollars in thousands, except per share data)        |  | 2008                    |            |   | 2007 |   |            | 2006 | 
|Net investment income after income taxes             |  | $                       | 15,090     |   |      | $ | 5,298      |      |  | $ | 3,165      |  
|Net realized gains (losses) on investments           |  |                         | (3,746     | ) |      |   | 14,172     |      |  |   | 3,080      |  
|Net unrealized gains (losses) on investments         |  |                         | 3,904      |   |      |   | (4,034     | )    |  |   | 6,863      |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Net increase in net assets resulting from operations |  |                         | 15,248     |   |      |   | 15,436     |      |  |   | 13,108     |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Investment income, net                               |  |                         | (13,276    | ) |      |   | (6,085     | )    |  |   | (6,049     | )
|Realized gain from investment transactions, net      |  |                         | (38        | ) |      |   | (7,200     | )    |  |   | (5,377     | )
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Dividends and distributions to shareholders(1)      |  |                         | (13,314    | ) |      |   | (13,285    | )    |  |   | (11,426    | )
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Exercise of stock options                            |  |                         | 663        |   |      |   | 971        |      |  |   | 1,592      |  
|Treasury stock acquired                              |  |                         | (74        | ) |      |   | (327       | )    |  |   |           |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Capital share transactions                           |  |                         | 589        |   |      |   | 644        |      |  |   | 1,592      |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Total increase in net assets                         |  |                         | 2,523      |   |      |   | 2,795      |      |  |   | 3,274      |  
|Net assets at the beginning of the year              |  |                         | 172,423    |   |      |   | 169,628    |      |  |   | 166,354    |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Net assets at the end of the year(2)                 |  | $                       | 174,946    |   |      | $ | 172,423    |      |  | $ | 169,628    |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Capital share activity                               |  |                         |            |   |      |   |            |      |  |   |            |  
|Common stock issued, beginning of year               |  |                         | 18,902,416 |   |      |   | 18,799,766 |      |  |   | 18,546,648 |  
|Exercise of stock options                            |  |                         | 61,050     |   |      |   | 102,650    |      |  |   | 253,118    |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Common stock issued, end of year                     |  |                         | 18,963,466 |   |      |   | 18,902,416 |      |  |   | 18,799,766 |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Treasury stock, beginning of year                    |  |                         | (1,406,551 | ) |      |   | (1,373,351 | )    |  |   | (1,373,351 | )
|Treasury stock acquired                              |  |                         | (7,691     | ) |      |   | (33,200    | )    |  |   |           |  
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Treasury stock, end of year                          |  |                         | (1,414,242 | ) |      |   | (1,406,551 | )    |  |   | (1,373,351 | )
|                                                     |  |                         |            |   |      |   |            |      |  |   |            |  
|Common stock outstanding                             |  |                         | 17,549,224 |   |      |   | 17,495,865 |      |  |   | 17,426,415 |  



|(1) | Dividends paid were $0.76, $0.76, and $0.66 per share for the years ended December 31, 2008, 2007, and 2006.
|--- | ------------------------------------------------------------------------------------------------------------



|(2) | Includes $1,360, $2,739 and $1,368 of undistributed net investment income and $0, $0, and $0 of undistributed net realized gains on investments at December 31, 2008, 2007, and
2006.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes should be read in conjunction with these consolidated financial statements.



F-5



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##### Table of Contents

MEDALLION FINANCIAL CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                            |  | Year ended December 31, |         
|(Dollars in thousands)                                                                                                      |  | 2008                    |          |   | 2007 |   |          | 2006 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase in net assets resulting from operations                                                                        |  | $                       | 15,248   |   |      | $ | 15,436   |      |  | $ | 13,108   |  
|Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                                                               |  |                         | 1,472    |   |      |   | 1,421    |      |  |   | 1,049    |  
|Amortization of origination costs                                                                                           |  |                         | 363      |   |      |   | 495      |      |  |   | 510      |  
|Increase in net unrealized (appreciation) depreciation on investments                                                       |  |                         | (6,323   | ) |      |   | 6,326    |      |  |   | 591      |  
|Increase in unrealized (appreciation) depreciation on Medallion Bank and other controlled subsidiaries                      |  |                         | 2,419    |   |      |   | (2,292   | )    |  |   | (7,454   | )
|Net realized (gains) losses on investments                                                                                  |  |                         | 3,746    |   |      |   | (14,172  | )    |  |   | (3,080   | )
|Stock-based compensation expense                                                                                            |  |                         | 310      |   |      |   | 323      |      |  |   | 342      |  
|(Increase) decrease in accrued interest receivable                                                                          |  |                         | 300      |   |      |   | (272     | )    |  |   | 205      |  
|(Increase) in other assets, net                                                                                             |  |                         | (3,085   | ) |      |   | (4,072   | )    |  |   | (2,653   | )
|Increase (decrease) in accounts payable and accrued expenses                                                                |  |                         | 2,870    |   |      |   | (854     | )    |  |   | 732      |  
|Increase (decrease) in accrued interest payable                                                                             |  |                         | (72      | ) |      |   | 312      |      |  |   | 24       |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                                                   |  |                         | 17,248   |   |      |   | 2,651    |      |  |   | 3,374    |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS USED FOR INVESTING ACTIVITIES                                                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Investments originated                                                                                                      |  |                         | (248,950 | ) |      |   | (329,955 | )    |  |   | (309,761 | )
|Proceeds from principal receipts, sales, and maturities of investments                                                      |  |                         | 342,523  |   |      |   | 275,468  |      |  |   | 293,920  |  
|Investments in Medallion Bank and other controlled subsidiaries, net                                                        |  |                         | (19,026  | ) |      |   | (4,761   | )    |  |   | (2,658   | )
|Capital expenditures                                                                                                        |  |                         | (240     | ) |      |   | (488     | )    |  |   | (486     | )
|Banco portfolio acquisition                                                                                                 |  |                         |         |   |      |   |         |      |  |   | (35,703  | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used for) investing activities                                                                        |  |                         | 74,307   |   |      |   | (59,736  | )    |  |   | (54,688  | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                        |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from funds borrowed                                                                                                |  |                         | 518,219  |   |      |   | 361,881  |      |  |   | 269,656  |  
|Repayments of funds borrowed                                                                                                |  |                         | (609,118 | ) |      |   | (308,777 | )    |  |   | (215,434 | )
|Proceeds from SBA debentures issued                                                                                         |  |                         | 11,000   |   |      |   |         |      |  |   |         |  
|Proceeds from Trust Preferred Securities issued                                                                             |  |                         |         |   |      |   | 35,000   |      |  |   |         |  
|Proceeds from exercise of stock options                                                                                     |  |                         | 353      |   |      |   | 648      |      |  |   | 1,244    |  
|Payments of declared dividends                                                                                              |  |                         | (13,314  | ) |      |   | (13,285  | )    |  |   | (11,426  | )
|Purchase of treasury stock at cost                                                                                          |  |                         | (74      | ) |      |   | (327     | )    |  |   |         |  
|Commitment fees on SBA leverage                                                                                             |  |                         |         |   |      |   |         |      |  |   | (135     | )
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by (used for) financing activities                                                                        |  |                         | (92,934  | ) |      |   | 75,140   |      |  |   | 43,905   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                        |  |                         | (1,379   | ) |      |   | 18,055   |      |  |   | (7,409   | )
|CASH and cash equivalents, beginning of year                                                                                |  |                         | 33,454   |   |      |   | 15,399   |      |  |   | 22,808   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|CASH and cash equivalents, end of year                                                                                      |  | $                       | 32,075   |   |      | $ | 33,454   |      |  | $ | 15,399   |  
|                                                                                                                            |  |                         |          |   |      |   |          |      |  |   |          |  
|SUPPLEMENTAL INFORMATION                                                                                                    |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash paid during the year for interest                                                                                      |  | $                       | 24,723   |   |      | $ | 29,435   |      |  | $ | 23,713   |  
|Cash paid during the year for income taxes                                                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Non-cash investing activities-net transfers to (from) other assets                                                          |  |                         | (642     | ) |      |   |         |      |  |   |         |  

The accompanying notes should be read in conjunction with these consolidated financial statements.



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##### Table of Contents

MEDALLION FINANCIAL CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008

(1) ORGANIZATION OF MEDALLION FINANCIAL CORP. AND ITS SUBSIDIARIES

We, Medallion Financial Corp. (the Company), are a closed-end management investment company organized as a Delaware corporation. The Company has elected
to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). The Company conducts its business through various wholly-owned subsidiaries including its primary operating company,
Medallion Funding Corp. (MFC), a Small Business Investment Company (SBIC) which originates and services taxicab medallion and commercial loans.

The Company also conducts business through Medallion Capital, Inc. (MCI), an SBIC which conducts a mezzanine financing business, and Freshstart Venture Capital Corp. (FSVC), an SBIC which originates and services taxicab medallion and
commercial loans. MFC, MCI, and FSVC, as SBICs, are regulated and financed in part by the Small Business Administration (SBA). The Company also conducts business through our asset-based lending division, Medallion Business Credit (MBC), an
originator of loans to small businesses for the purpose of financing inventory and receivables, which prior to December 31, 2007, was a wholly-owned investment company subsidiary. On December 31, 2007, Medallion Business Credit was merged
into the Company and ceased to exist as a separate legal entity.

In December 2008, MFC established a wholly-owned subsidiary, Taxi
Medallion Loan Trust III (Trust III), for the purpose of owning medallion loans originated by MFC or others. Trust III is a separate legal and corporate entity with its own creditors who, in any liquidation of Trust III, will be entitled to be
satisfied out of Trust IIIs assets prior to any value in Trust III becoming available to Trust IIIs equity holders. The assets of Trust III, aggregating $102,465,000 at December 31, 2008, are not available to pay obligations of its
affiliates or any other party, and the assets of affiliates or any other party are not available to pay obligations of Trust III. Trust IIIs loans are serviced by MFC.

In June 2007, the Company established a wholly-owned subsidiary, Medallion Financing Trust I (Fin Trust) for the purpose of issuing unsecured preferred
securities to investors. Fin Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of Fin Trust, will be entitled to be satisfied out of Fin Trusts assets prior to any value in Fin Trust becoming
available to Fin Trusts equity holders. The assets of Fin Trust, aggregating $36,173,000 at December 31, 2008, are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are
not available to pay obligations of Fin Trust.

In December 2006, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust II
(Trust II), for the purpose of owning medallion loans originated by MFC or others. Trust II is a separate legal and corporate entity with its own creditors who, in any liquidation of Trust II, will be entitled to be satisfied out of Trust IIs
assets prior to any value in Trust II becoming available to Trust IIs equity holders. The assets of Trust II, aggregating $249,127,000 at December 31, 2008, are not available to pay obligations of its affiliates or any other party, and
the assets of affiliates or any other party are not available to pay obligations of Trust II. Trust IIs loans are serviced by MFC.

In December 2006, September 2006, and previously in June 2003, MFC through several wholly-owned and newly formed subsidiaries which, along with an existing subsidiary (together, Medallion Chicago), purchased certain City of Chicago
taxicab medallions out of foreclosure which are leased to fleet operators while being held for sale.

A wholly-owned portfolio investment,
Medallion Bank, a Federal Deposit Insurance Corporation (FDIC) insured industrial bank, originates medallion loans, commercial loans, and consumer loans, raises deposits, and conducts other banking activities (see Note 4). Medallion Bank was
capitalized on December 16, 2003, with $22,000,000 from the Company. On December 22, 2003, upon satisfaction of the conditions set forth in the FDICs order of October 2, 2003 approving Medallion Banks application for
federal deposit insurance, the FDIC certified that the deposits of each depositor in Medallion Bank were insured to the maximum amount provided by the Federal Deposit Insurance Act and Medallion Bank opened for business. Medallion Bank is subject to
competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes examinations by those agencies.

Medallion Bank is not an investment company, and therefore, is not consolidated with the Company, but instead is treated as a portfolio investment. It was initially formed for the primary purpose of originating
commercial loans in three categories: 1) loans to



F-7



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##### Table of Contents

finance the purchase of taxicab medallions (licenses), 2) asset-based commercial loans, and 3) SBA 7(a) loans. The loans are marketed and serviced by
Medallion Banks affiliates who have extensive prior experience in these asset groups. Additionally, Medallion Bank began issuing brokered certificates of deposit in January 2004, and purchased over $84,150,000 of taxicab medallion and
asset-based loans from affiliates of the Company. On April 1, 2004, Medallion Bank purchased a consumer loan portfolio from an unrelated financial institution for consideration of $86,309,000. The purchase was funded with $7,700,000 of
additional capital contributed by the Company and with deposits raised by Medallion Bank. In the 2004 third quarter, Medallion Bank began originating consumer loans similar to the acquired portfolio, which are serviced by a third party.

In September 2002, MFC established a wholly-owned subsidiary, Taxi Medallion Loan Trust I (Trust), for the purpose of owning medallion loans
originated by MFC or others. The Trust is a separate legal and corporate entity with its own creditors who, in any liquidation of the Trust, will be entitled to be satisfied out of the Trusts assets prior to any value in the Trust becoming
available to the Trusts equity holders. The assets of the Trust, aggregating $91,000 at December 31, 2008 are not available to pay obligations of its affiliates or any other party, and the assets of affiliates or any other party are not
available to pay obligations of the Trust. The Trusts loans are serviced by MFC.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation
of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates that affect the amounts reported in the consolidated financial statements and
the accompanying notes. Accounting estimates and assumptions are those that management considers to be the most critical to an understanding of the consolidated financial statements because they inherently involve significant judgments and
uncertainties. All of these estimates reflect managements best judgment about current economic and market conditions and their effects based on information available as of the date of these consolidated financial statements. If such conditions
persist longer or deteriorate further than expected, it is reasonably possible that the judgments and estimates could change, which may result in future impairments of loans receivable, loans held for sale, investments, among other effects.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, except for Medallion Bank and other portfolio investments. All significant intercompany transactions, balances, and profits have
been eliminated in consolidation. As a non-investment company, Medallion Bank is not consolidated with the Company, which is an investment company under the 1940 Act. See note 3 regarding our changes in reporting entity in 2006, and note 4 for the
presentation of financial information for Medallion Bank and other controlled subsidiaries.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances
are generally held in accounts at large national or regional banking organizations in amounts that frequently exceed the federally insured limits.

Fair Value of Assets and Liabilities

The Company adopted Statement of Accounting Standards No. 157, Fair Value
Measurements (SFAS No. 157) in the 2008 first quarter, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. While SFAS No. 157 does not require any new fair
value measurements, it applies under other pronouncements that require or permit fair value measurements, such as SFAS No. 107, 133, 150, 155, and 156. SFAS No 157 clarifies the definition of fair value as an exit price (i.e. a price that would
be received to sell, as opposed to acquire, an asset or transfer a liability), and emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data
obtained from independent external sources and the reporting entities own assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. For
assets and liabilities measured at fair value, SFAS No. 157 expands the required disclosures concerning the inputs used to measure fair value. See also Notes 2, 16, and 17 to the consolidated financial statements.



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##### Table of Contents

Investment Valuation

The Companys loans, net of participations and any unearned discount, are considered investment securities under the 1940 Act and are recorded at
fair value. As part of the fair value methodology, loans are valued at cost adjusted for any unrealized appreciation (depreciation). Since no ready market exists for these loans, the fair value is determined in good faith by management, and approved
by the Board of Directors. In determining the fair value, the Company and Board of Directors consider factors such as the financial condition of the borrower, the adequacy of the collateral, individual credit risks, historical loss experience, and
the relationships between current and projected market rates and portfolio rates of interest and maturities. Foreclosed properties, which represent collateral received from defaulted borrowers, are valued similarly.

Equity investments (common stock and stock warrants, including certain controlled subsidiary portfolio investments) and investment securities (US
Treasuries and mortgage backed bonds), in total representing 14% and 10% of the investment portfolio at December 31, 2008 and 2007, are recorded at fair value, represented as cost, plus or minus unrealized appreciation or depreciation. The fair
value of investments that have no ready market are determined in good faith by management, and approved by the Board of Directors, based upon the financial condition and operating performance of the underlying investee companies as well as general
market trends for businesses in the same industry. Included in equity investments were marketable securities of $1,543,000 and $4,263,000 at December 31, 2008 and 2007, and non-marketable securities of $1,729,000 and $617,000 in the comparable
periods. The $74,750,000 and $57,501,000 related to portfolio investments in controlled subsidiaries at December 31, 2008 and 2007 were all non-marketable in each period. Because of the inherent uncertainty of valuations, managements
estimates of the values of the investments may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material.

Our investment in Medallion Bank, as a wholly owned portfolio investment, is also subject to quarterly assessments of fair value. We conduct a thorough
valuation analysis as described previously, and determine whether any factors give rise to a valuation different than recorded book value, including various regulatory restrictions that were established at Medallion Banks inception, by the
FDIC and State of Utah, and also by additional marketplace restrictions, such as on the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion Banks actual results of operations as the best
estimate of changes in- fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable factors could change these conclusions in the future.
See Note 4 for additional information about Medallion Bank.

A majority of the Companys investments consist of long-term loans to
persons defined by SBA regulations as socially or economically disadvantaged, or to entities that are at least 50% owned by such persons. Approximately 70% and 76% of the Companys investment portfolio at December 31, 2008 and 2007 had
arisen in connection with the financing of taxicab medallions, taxicabs, and related assets, of which 76% and 80% were in New York City at December 31, 2008 and 2007. These loans are secured by the medallions, taxicabs, and related assets, and
are personally guaranteed by the borrowers, or in the case of corporations, are generally guaranteed personally by the owners. A portion of the Companys portfolio (16% and 14% at December 31, 2008 and 2007) represents loans to various
commercial enterprises, in a wide variety of industries, including manufacturing, wholesaling, administrative and support services, accommodation and food services, and various other industries. More than 25% of these loans are made primarily in the
metropolitan New York City area, with the balance widely scattered across the US. Investments in controlled unconsolidated subsidiaries, equity investments, and investment securities were 13%, 1%, and 0% at December 31, 2008 and 9%, 1%, and 0%
at December 31, 2007.

On a managed basis, which includes the investments of Medallion Bank after eliminating the Companys
investment in Medallion Bank, medallion loans were 57% and 63% at December 31, 2008 and 2007 (74% and 83% in New York City), commercial loans were 19% and 19%, and 20% and 15% were consumer loans in all 50 states collateralized by recreational
vehicles, boats, motorcycles, and trailers. Investment securities were 2% at both December 31, 2008 and 2007, and equity investments (including investments in controlled subsidiaries) were 2% and 1%.

Investment Transactions and Income Recognition

Loan origination fees and certain direct origination costs are deferred and recognized as an adjustment to the yield of the related loans. At December 31, 2008 and 2007, net origination costs totaled
approximately $252,000 and $734,000. Amortization expense for the years ended December 31, 2008, 2007, and 2006 was $363,000, $495,000, and $510,000.



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Investment securities are purchased from time-to-time in the open market at prices that are greater or
lesser than the par value of the investment. The resulting premium or discount is deferred and recognized as an adjustment to the yield of the related investment. At December 31, 2008 and 2007, there were no premiums or discounts on investment
securities, and their related income accretion or amortization was immaterial for 2008, 2007, and 2006.

Interest income is recorded on the
accrual basis. Taxicab medallion and commercial loans are placed on nonaccrual status, and all uncollected accrued interest is reversed, when there is doubt as to the collectability of interest or principal, or if loans are 90 days or more past due,
unless management has determined that they are both well-secured and in the process of collection. Interest income on nonaccrual loans is generally recognized when cash is received, unless a determination has been made to apply all cash receipts to
principal. At December 31, 2008, 2007, and 2006, total non-accrual loans were approximately $17,939,000, $21,968,000, and $13,670,000, and represented 4%, 4%, and 3% of the gross medallion and commercial loan portfolio at each yearend. The
amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in accordance with their original terms was approximately $4,172,000, $6,856,000, and $5,281,000 as of December 31, 2008, 2007, and 2006,
of which $1,749,000, $2,892,000, and $2,103,000 would have been recognized in the years ended December 31, 2008, 2007, and 2006.

Loan Sales and Servicing Fee Receivable

The Company accounts for its sales of loans in accordance with Statement of
Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125 (SFAS 140). In addition, we are in compliance with
Statement of Financial Accounting Standards No. 156 Accounting for Servicing of Financial Assets  an Amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. In accordance with SFAS 156, we have elected the fair value measurement method for our servicing assets and liabilities. The principal portion of loans serviced for others by the
Company was $268,028,000 and $168,781,000 at December 31, 2008 and 2007, and included $204,055,000 and $163,816,000 of loans serviced for Medallion Bank. The Company has evaluated the servicing aspect of its business in accordance with SFAS
156, most of which relates to servicing assets held by Medallion Bank, and determined that no material servicing asset or liability exists as of December 31, 2008 and 2007.

Unrealized Appreciation (Depreciation) and Realized Gains (Losses) on Investments

The change in unrealized appreciation (depreciation) on investments is the amount by which the fair value estimated by the Company is greater (less) than
the cost basis of the investment portfolio. Realized gains or losses on investments are generated through sales of investments, foreclosure on specific collateral, and writeoffs of loans or assets acquired in satisfaction of loans, net of
recoveries. Unrealized appreciation (depreciation) on net investments was $10,936,000, $4,614,000, and $4,000 as of December 31, 2008, 2007, and 2006. Our investment in Medallion Bank, a wholly owned portfolio investment, is a also subject to
quarterly assessments of fair value. We conduct a thorough valuation analysis as described previously, and determine whether any factors give rise to valuation different than recorded book value, including various regulatory restrictions that were
established at Medallion Banks inception, by the FDIC and State of Utah, and also by additional marketplace restrictions, such as on the ability to transfer industrial bank charters. As a result of this valuation process, we used Medallion
Banks actual results of operations as the best estimate of changes in fair value, and recorded the results as a component of unrealized appreciation (depreciation) on investments, although changes in these restrictions and other applicable
factors could change these conclusions in the future. See note 4 for the presentation of financial information for Medallion Bank.



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##### Table of Contents

The following table sets forth the changes in our unrealized appreciation (depreciation) on investments,
other than investments in controlled subsidiaries, for the years ended December 31, 2008, 2007, and 2006.



|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|---------------------------------------------------------------------- |  | ------- | - |  | ----------------- | ------ | - | -------------------- | - | ------- | ----- |  | - | ------- | -
|(Dollars in thousands)                                                 |  | Loans   |   |  | EquityInvestments |        |   | ForeclosedProperties |   |         | Total | 
|Balance December 31, 2005                                              |  | ($7,896 | ) |  | $                 | 629    |   |                      |   | ($1,397 | )     |  |   | ($8,664 | )
|Net change in unrealized                                               |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Appreciation on investments                                            |  |        |   |  |                   | 4,236  |   |                      |   | 921     |       |  |   | 5,157   |  
|Depreciation on investments                                            |  | 824     |   |  |                   | (173   | ) |                      |   |        |       |  |   | 651     |  
|Reversal of unrealized appreciation (depreciation) related to realized |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Gains on investments                                                   |  |        |   |  |                   | (2,579 | ) |                      |   |        |       |  |   | (2,579  | )
|Losses on investments                                                  |  | 4,016   |   |  |                   |       |   |                      |   | 1,423   |       |  |   | 5,439   |  
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Balance December 31, 2006                                              |  | (3,056  | ) |  |                   | 2,113  |   |                      |   | 947     |       |  |   | 4       |  
|Net change in unrealized                                               |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Appreciation on investments                                            |  |        |   |  |                   | 2,127  |   |                      |   | 8,245   |       |  |   | 10,372  |  
|Depreciation on investments                                            |  | (4,246  | ) |  |                   | (133   | ) |                      |   | (159    | )     |  |   | (4,538  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Gains on investments                                                   |  |        |   |  |                   | (1,361 | ) |                      |   | (571    | )     |  |   | (1,932  | )
|Losses on investments                                                  |  | 833     |   |  |                   |       |   |                      |   |        |       |  |   | 833     |  
|Other                                                                  |  |        |   |  |                   | (4     | ) |                      |   | (121    | )     |  |   | (125    | )
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Balance December 31, 2007                                              |  | (6,469  | ) |  |                   | 2,742  |   |                      |   | 8,341   |       |  |   | 4,614   |  
|Net change in unrealized                                               |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Appreciation on investments                                            |  |        |   |  |                   | (1,995 | ) |                      |   | 8,183   |       |  |   | 6,188   |  
|Depreciation on investments                                            |  | (4,076  | ) |  |                   | (110   | ) |                      |   | 168     |       |  |   | (4,018  | )
|Reversal of unrealized appreciation (depreciation) related to realized |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Gains on investments                                                   |  |        |   |  |                   |       |   |                      |   | (1,400  | )     |  |   | (1,400  | )
|Losses on investments                                                  |  | 5,230   |   |  |                   |       |   |                      |   | 322     |       |  |   | 5,552   |  
|Other                                                                  |  | 200     |   |  |                   | (200   | ) |                      |   |        |       |  |   |        |  
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  
|Balance December 31, 2008                                              |  | ($5,115 | ) |  | $                 | 437    |   |                      | $ | 15,614  |       |  | $ | 10,936  |  
|                                                                       |  |         |   |  |                   |        |   |                      |   |         |       |  |   |         |  

The table below summarizes components of unrealized and realized gains and losses in the
investment portfolios for the years ended December 31, 2008, 2007, and 2006.



|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|(Dollars in thousands)                                                                                       |  | 2008 |         |   | 2007 |   |         | 2006 | 
|Net change in unrealized appreciation (depreciation) on investments                                          |  |      |         |   |      |   |         |      |  |   |        |  
|Unrealized appreciation                                                                                      |  |      | ($1,994 | ) |      | $ | 2,127   |      |  | $ | 4,236  |  
|Unrealized depreciation                                                                                      |  |      | (4,186  | ) |      |   | (4,379  | )    |  |   | (7,185 | )
|Net unrealized appreciation (depreciation) on investment in Medallion Bank and other controlled subsidiaries |  |      | (2,419  | ) |      |   | 2,292   |      |  |   | 7,454  |  
|Realized gains                                                                                               |  |      |        |   |      |   | (11,647 | )    |  |   | (2,579 | )
|Realized losses                                                                                              |  |      | 5,230   |   |      |   | 833     |      |  |   | 4,016  |  
|Unrealized gains on foreclosed properties                                                                    |  |      | 7,273   |   |      |   | 6,740   |      |  |   | 921    |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|Total                                                                                                        |  | $    | 3,904   |   |      |   | ($4,034 | )    |  | $ | 6,863  |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|Net realized gains (losses) on investments                                                                   |  |      |         |   |      |   |         |      |  |   |        |  
|Realized gains                                                                                               |  | $    |        |   |      | $ | 2,914   |      |  | $ | 2,579  |  
|Realized losses                                                                                              |  |      | (5,230  | ) |      |   | (833    | )    |  |   | (4,016 | )
|Other gains                                                                                                  |  |      | 470     |   |      |   | 10,732  |      |  |   | 5,997  |  
|Direct recoveries (charge-offs)                                                                              |  |      | (50     | ) |      |   | 23      |      |  |   | (1,484 | )
|Realized gains on foreclosed properties                                                                      |  |      | 1,064   |   |      |   | 1,336   |      |  |   | 4      |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  
|Total                                                                                                        |  |      | ($3,746 | ) |      | $ | 14,172  |      |  | $ | 3,080  |  
|                                                                                                             |  |      |         |   |      |   |         |      |  |   |        |  



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##### Table of Contents

Goodwill

Effective January 1, 2002, coincident with the adoption of SFAS No.142, Goodwill and Intangible Assets, the Company tests its goodwill for impairment, and engages a consultant to help management
evaluate its carrying value. The results of this evaluation demonstrated no impairment in goodwill for 2008, 2007, and 2006. The Company conducts annual, and if necessary, more frequent, appraisals of its goodwill, and will recognize any impairment
in the period any impairment is identified as a charge to operating expenses.

Fixed Assets

Fixed assets are carried at cost less accumulated depreciation and amortization, and are depreciated on a straight-line basis over their estimated useful
lives of 3 to 10 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated economic useful life of the improvement. Depreciation and amortization expense was $387,000, $457,000, and
$415,000 for the years ended December 31, 2008, 2007, and 2006.

Deferred Costs

Deferred financing costs, included in other assets, represents costs associated with obtaining the Companys borrowing facilities, and is amortized
on a straight line basis over the lives of the related financing agreements. Amortization expense was $1,085,000, $964,000, and $634,000 for the years ended December 31, 2008, 2007, and 2006. In addition, the Company capitalizes certain costs
for transactions in the process of completion, including those for acquisitions and the sourcing of other financing alternatives. Upon completion or termination of the transaction, any accumulated amounts will be amortized against income over an
appropriate period, capitalized as goodwill, or written off. The amounts on the balance sheet for all of these purposes were $5,748,000 and $3,918,000 at December 31, 2008 and 2007.

Federal Income Taxes

The Company
and each of its major subsidiaries other than Medallion Bank (the RIC subsidiaries) have qualified to be treated for federal income tax purposes as regulated investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Code).
As RICs, the Company and each of the RIC subsidiaries are not subject to US federal income tax on any gains or investment company taxable income (which includes, among other things, dividends and interest income reduced by deductible expenses) that
it distributes to its shareholders, if at least 90% of its investment company taxable income for that taxable year is distributed. It is the Companys and the RIC subsidiaries policy to comply with the provisions of the Code. The
Companys RIC qualification is determined on an annual basis, and it qualified and filed its federal tax returns as a RIC for 2007 and 2006, and anticipates qualifying and filing as a RIC for 2008. Income tax (provision) benefit reported on the
consolidated statements of operations were $0, $0, and $0 for the years ended December 31, 2008, 2007, and 2006. State and local tax treatment follows the federal model.

Medallion Bank is not a RIC and is taxed as a regular corporation. Fin Trust, Trust II, and Trust III are not subject to federal income taxation, instead
their taxable income is treated as having been earned by the Company and MFC as appropriate.

Net Increase in Net Assets Resulting from
Operations per Share (EPS)

Basic earnings per share are computed by dividing net increase in net assets resulting from operations
available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if option contracts to issue common stock were exercised, and has
been computed after giving consideration to the weighted average dilutive effect of the Companys stock options. The Company uses the treasury stock method to calculate diluted EPS, which is a method of recognizing the use of proceeds that
could be obtained upon exercise of options and warrants in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period.



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##### Table of Contents

The table below shows the calculation of basic and diluted EPS.



|                                                                                      |  |                          |            |      |   |            |  |   |           
|------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | ---- | - | ---------- |  | - | ----------
|                                                                                      |  | Years Ended December 31,
|(Dollars in thousands)                                                                |  | 2008                     |            | 2007 |   | 2006      
|Net increase in net assets resulting from operations available to common shareholders |  | $                        | 15,248     |      | $ | 15,436     |  | $ | 13,108    
|                                                                                      |  |                          |            |      |   |            |  |   |           
|Weighted average common shares outstanding applicable to basic EPS                    |  |                          | 17,520,966 |      |   | 17,480,523 |  |   | 17,293,665
|Effect of dilutive stock options                                                      |  |                          | 201,609    |      |   | 305,787    |  |   | 467,374   
|                                                                                      |  |                          |            |      |   |            |  |   |           
|Adjusted weighted average common shares outstanding applicable to diluted EPS         |  |                          | 17,722,575 |      |   | 17,786,310 |  |   | 17,761,039
|                                                                                      |  |                          |            |      |   |            |  |   |           
|Basic earnings per share                                                              |  | $                        | 0.87       |      | $ | 0.88       |  | $ | 0.76      
|Diluted earnings per share                                                            |  |                          | 0.86       |      |   | 0.87       |  |   | 0.74      
|                                                                                      |  |                          |            |      |   |            |  |   |           

Potentially dilutive stock options excluded from the above calculations aggregated 1,328,537,
795,936, and 611,762 shares as of December 31, 2008, 2007, and 2006.

Dividends to Shareholders

The table below shows the tax character of distributions for tax reporting purposes.



|                                                |  |                          |        |      |   |        |  |   |       
|----------------------------------------------- |  | ------------------------ | ------ | ---- | - | ------ |  | - | ------
|                                                |  | Years Ended December 31,
|(Dollars in thousands)                          |  | 2008                     |        | 2007 |   | 2006  
|Dividends paid from                             |  |                          |        |      |   |        |  |   |       
|Investment income, net                          |  | $                        | 13,276 |      | $ | 6,085  |  | $ | 6,049 
|Realized gain from investment transactions, net |  |                          | 38     |      |   | 7,200  |  |   | 5,377 
|                                                |  |                          |        |      |   |        |  |   |       
|Total dividends                                 |  | $                        | 13,314 |      | $ | 13,285 |  | $ | 11,426
|                                                |  |                          |        |      |   |        |  |   |       

Our ability to make dividend payments is restricted by SBA regulations and under the terms of the
SBA debentures. As of December 31, 2008, the Company anticipates paying an estimated $1,360,000 of ordinary income dividends for tax purposes by September 15, 2009.

Stock Compensation

The Company
applies SFAS No. 123 (Revised), Share-Based Payment (SFAS No. 123R), and related interpretations in accounting for its stock option plans effective January 1, 2006, and accordingly, the Company recognizes the expense of
these grants as required. Stock-based employee compensation costs pertaining to stock options is reflected in net increase in net assets resulting from operations, for both any new grants, as well as for all unvested options outstanding at
December 31, 2005, in both cases using the fair values established by usage of the Black-Scholes option pricing model, expensed over the vesting period of the underlying option.

The Company elected the modified prospective transition method for adopting SFAS No. 123R. Under this method, the provisions of SFAS 123R apply to
all awards granted or modified after the date of adoption, as well as for all unvested options outstanding at December 31, 2005. During 2008, 2007, and 2006, the Company issued 429,918, 209,674, and 207,162 shares of stock-based compensation
awards, and recognized $310,000, $323,000, and $342,000, or $0.02 per diluted common share for each year, of non-cash stock-based compensation expense related to the option grants. As of December 31, 2008, the total remaining unrecognized
compensation cost related to unvested stock options was $449,000, which is expected to be recognized over the next ten quarters (see note 6).

Derivatives

The Company had no interest rate cap agreements or other derivative investments outstanding during 2008, 2007,
and 2006.

Reclassifications

Certain reclassifications have been made to prior year balances to conform with the current year presentation. These reclassifications have no effect on the previously reported results of operations.



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##### Table of Contents

(3) CHANGE IN THE REPORTING ENTITY

Since Medallion Bank commenced operations in December 2003, the Company had historically consolidated Medallion Banks financial statements with those of its own. Although Medallion Bank is not an investment
company, and SEC rules generally do not permit investment companies such as the Company to consolidate the financial statements of non-investment companies, such as Medallion Bank, the Company had sought and obtained a letter from the SEC in March
2004 permitting such consolidation. The Company believed that consolidating Medallion Bank provided a more complete and accurate representation of the Companys full scope of operations, and its complete financial position and results of
operations.

During August 2006, the Company filed a registration statement on Form N-2 which the SEC staff reviewed and on which they
provided comments, including those relating to the consolidation of the accounts of Medallion Bank which have evolved since 2004. Based on discussions with the SEC staff, the Company determined during the 2006 fourth quarter to voluntarily not
consolidate Medallion Bank and present Medallion Bank as a portfolio company. The Company determined that this change represents a change in the reporting entity as described in SFAS No. 154, Accounting Changes and Error
Corrections. Accordingly the Company retrospectively applied this change to the financial statements of all prior periods presented, including previously issued interim periods presented, included in its 2006 Form 10-K. The effect of this
retrospective application was to present the Companys financial position and results of operations as if Medallion Bank had not been consolidated for all periods presented and to present Medallion Bank as an unconsolidated portfolio
investment. Although this created changes in the reported levels of assets, liabilities, revenues, and expenses, our net increase in net assets resulting from operations, shareholders equity, and the related amounts per common share were
unchanged.

(4) INVESTMENT IN MEDALLION BANK AND OTHER CONTROLLED SUBSIDIARIES

The following table presents information derived from Medallion Banks statement of operations and other valuation adjustments on other controlled
subsidiaries for the years ended December 31, 2008, 2007, and 2006.



|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|(Dollars in thousands)                                                                                              |  | 2008 |         |   | 2007 |   |        | 2006 | 
|Statement of operations                                                                                             |  |      |         |   |      |   |        |      |  |   |        |  
|Investment income                                                                                                   |  | $    | 41,373  |   |      | $ | 36,564 |      |  | $ | 29,975 |  
|Interest expense                                                                                                    |  |      | 14,934  |   |      |   | 13,804 |      |  |   | 10,453 |  
|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  
|Net interest income                                                                                                 |  |      | 26,439  |   |      |   | 22,760 |      |  |   | 19,522 |  
|Noninterest income                                                                                                  |  |      | 468     |   |      |   | 337    |      |  |   | 490    |  
|Operating expenses                                                                                                  |  |      | 8,554   |   |      |   | 7,190  |      |  |   | 6,289  |  
|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  
|Net investment income before income taxes                                                                           |  |      | 18,353  |   |      |   | 15,907 |      |  |   | 13,723 |  
|Income tax provision                                                                                                |  |      | 2,776   |   |      |   | 4,059  |      |  |   | 4,388  |  
|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  
|Net investment income after income taxes                                                                            |  |      | 15,577  |   |      |   | 11,848 |      |  |   | 9,335  |  
|Net realized/unrealized losses of Medallion Bank                                                                    |  |      | (11,452 | ) |      |   | (4,696 | )    |  |   | (3,331 | )
|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  
|Net increase in net assets resulting from operations of Medallion Bank                                              |  |      | 4,125   |   |      |   | 7,152  |      |  |   | 6,004  |  
|Unrealized depreciation on Medallion Bank(1)                                                                        |  |      | (6,000  | ) |      |   | (5,750 | )    |  |   |       |  
|Net realized/unrealized gains/(losses) of controlled subsidiaries other than Medallion Bank                         |  |      | (544    | ) |      |   | 890    |      |  |   | 1,450  |  
|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  
|Net increase (decrease) in net assets resulting from operations of Medallion Bank and other controlled subsidiaries |  |      | ($2,419 | ) |      | $ | 2,292  |      |  | $ | 7,454  |  
|                                                                                                                    |  |      |         |   |      |   |        |      |  |   |        |  



|(1) | Unrealized depreciation on Medallion Bank reflects the adjustment to the investment carrying amount to reflect the dividends paid to the parent.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------



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The following table presents information derived from Medallion Banks balance sheets and the net
investment in other controlled subsidiaries as of December 31, 2008 and 2007.



|                                                                                                      |  |      |         |      |   |        
|----------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | -------
|(Dollars in thousands)                                                                                |  | 2008 |         | 2007
|Loans                                                                                                 |  | $    | 396,103 |      | $ | 315,108
|Investment securities, at fair value                                                                  |  |      | 20,088  |      |   | 21,838 
|Net investments ($0 pledged as collateral under borrowing arrangements at December 31, 2008 and 2007) |  |      | 416,191 |      |   | 336,946
|Cash ($0 at December 31, 2008 and 2007 restricted as to use by lender)                                |  |      | 9,401   |      |   | 17,025 
|Receivable from parent                                                                                |  |      |        |      |   | 1,059  
|Other assets, net                                                                                     |  |      | 9,802   |      |   | 6,743  
|                                                                                                      |  |      |         |      |   |        
|Total assets                                                                                          |  | $    | 435,394 |      | $ | 361,773
|                                                                                                      |  |      |         |      |   |        
|Other liabilities                                                                                     |  | $    | 1,227   |      | $ | 4,080  
|Payable to parent                                                                                     |  |      | 335     |      |   |       
|Deposits and federal funds purchased, including accrued interest payable                              |  |      | 370,064 |      |   | 302,800
|                                                                                                      |  |      |         |      |   |        
|Total liabilities                                                                                     |  |      | 371,626 |      |   | 306,880
|Medallion Bank equity                                                                                 |  |      | 63,768  |      |   | 54,893 
|                                                                                                      |  |      |         |      |   |        
|Total liabilities and equity                                                                          |  | $    | 435,394 |      | $ | 361,773
|                                                                                                      |  |      |         |      |   |        
|Investment in other controlled subsidiaries                                                           |  | $    | 10,747  |      | $ | 3,667  
|Total investment in Medallion Bank and other controlled subsidiaries                                  |  |      | 74,750  |      |   | 57,501 
|                                                                                                      |  |      |         |      |   |        



|(1) | Included in Medallion Banks net investments is $856 and $1,203 for purchased loan premium and facility fees at December 31, 2008 and 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

The following paragraphs summarize the accounting and reporting policies of Medallion Bank, and provide additional information relating to the table
presented above.

Investment securities are purchased from time-to-time in the open market at prices that are greater or lesser than the
par value of the investment. The resulting premium or discount is deferred and recognized on a level yield basis as an adjustment to the yield of the related investment. At December 31, 2008 and 2007, the net premium on investment securities
totaled $96,000 and $92,000, and (income accretion)/amortization expense was $(14,000), $140,000, and $160,000 for 2008, 2007, and 2006.

Medallion Banks policies regarding nonaccrual of medallion and commercial loans are similar to those of the Company. The consumer portfolio has different characteristics compared to commercial loans, typified by a larger number of
lower dollar loans that have similar characteristics. These loans are placed on nonaccrual, when they become 90 days past due, or earlier if they enter bankruptcy and are charged off in their entirety when deemed uncollectible, or when they become
120 days past due, whichever occurs first, at which time appropriate collection and recovery efforts against both the borrower and the underlying collateral are initiated. At December 31, 2008, $2,442,000 or 1% of consumer loans and $1,832,000
or 2% of commercial loans were on nonaccrual, compared to $623,000, or less than 1% of consumer loans on nonaccrual at December 31, 2007. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been
paying in accordance with their original terms was $141,000 in 2008, $27,000 in 2007, and $0 in 2006. None of Medallion Banks medallion loans were on nonaccrual as of December 31, 2008 and 2007.

Medallion Banks loan and investment portfolios are assessed for collectability on a monthly basis, and a loan loss allowance is established for any
realizability concerns on specific investments, and general reserves have also been established for any unknown factors. The consumer portfolio purchase was net of unrealized depreciation of $4,244,000, or 5.0% of the balances outstanding, and
included a purchase premium of approximately $5,678,000 of which $421,000, $654,000, and $986,000 was amortized into interest income during 2008, 2007, and 2006. The premium amount on the balance sheet was $818,000 and $1,239,000 as of December 2008
and 2007. Adjustments to the fair value of this portfolio are based on the historical loan loss data obtained from the seller, adjusted for changes in delinquency trends and other factors as described previously in note 2.

In January 2004, Medallion Bank commenced raising deposits to fund the purchase of various affiliates loan portfolios. The deposits were raised
through the use of investment brokerage firms who package deposits qualifying for FDIC insurance into pools that are sold to Medallion Bank. The rates paid on the deposits are highly competitive with market rates paid by other financial
institutions, and include a brokerage fee of 0.25% to 0.55%, depending on the maturity of the deposit, which is capitalized and amortized to interest expense over the life of the respective pool. The total amount capitalized at December 31,
2008 and 2007 was



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##### Table of Contents

$988,000 and $645,000, and $956,000, $795,000, and $699,000 was amortized to interest expense during 2008, 2007, and 2006. Interest on the deposits is
accrued daily and paid monthly, semiannually, or at maturity.

The outstanding balances of fixed rate borrowings were as follows:



|                                 |  |                                                      |         |                  |   |                  |  |                  |        |      |   |            |  |   |   |  |   |   |  |   |         |  |   |         |  |      |  
|-------------------------------- |  | ---------------------------------------------------- | ------- | ---------------- | - | ---------------- |  | ---------------- | ------ | ---- | - | ---------- |  | - | - |  | - | - |  | - | ------- |  | - | ------- |  | ---- | -
|                                 |  | Payments Due for the Fiscal Year Ending December 31, |         | December 31,2008 |   | December 31,2007 |  | InterestRate (1) |       
|(Dollars in thousands)           |  | 2009                                                 |         | 2010             |   | 2011             |  | 2012             |        | 2013 |   | Thereafter |  |   |  
|Deposits and fed funds purchased |  | $                                                    | 229,863 |                  | $ | 54,986           |  | $                | 81,559 |      | $ |           |  | $ |  |  | $ |  |  | $ | 366,408 |  | $ | 302,800 |  | 3.85 | %
|                                 |  |                                                      |         |                  |   |                  |  |                  |        |      |   |            |  |   |   |  |   |   |  |   |         |  |   |         |  |      |  



|(1) | Weighted average contractual rate as of December 31, 2008.
|--- | ----------------------------------------------------------

Medallion Bank is subject to various regulatory capital requirements administered by the FDIC and State of Utah Department of Financial Institutions. Failure to meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Medallion Banks and our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, Medallion Bank must meet specific capital guidelines that involve quantitative measures of Medallion Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Medallion
Banks capital amounts and classification are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

FDIC-insured banks, including Medallion Bank, are subject to certain federal laws, which impose various legal limitations on the extent to which banks may finance or otherwise supply funds to certain of their
affiliates. In particular, Medallion Bank is subject to certain restrictions on any extensions of credit to, or other covered transactions, such as certain purchases of assets, with the Company or its affiliates.

Quantitative measures established by regulation to ensure capital adequacy require Medallion Bank to maintain minimum amounts and ratios as defined in
the regulations (set forth in the table below). Additionally, as conditions of granting Medallion Banks application for federal deposit insurance, the FDIC ordered that beginning paid-in-capital funds of not less than $22,000,000 be provided,
and that the Tier I Leverage Capital to total assets ratio, as defined, be not less than 15%, and that an adequate allowance for loan losses be maintained. As a result, to facilitate maintenance of Medallion Banks capital ratio requirement and
to provide the necessary capital for continued growth, the Company periodically makes capital contributions to Medallion Bank, including an aggregate of $10,750,000 contributed over various months in 2008 and an aggregate of $6,800,000 contributed
similarly in 2007. Separately, Medallion Bank paid dividends to the Company of $6,000,000 in 2008, and $5,750,000 in 2007. Without the capital infusions by the Company, a portion of the Medallion Bank dividends would have been retained to ensure
Medallion Bank met its capital ratio requirements, and in such circumstance, if the Company maintained its dividend at the existing levels, a portion of those dividends would have represented a tax-free return of capital.

The following table represents Medallion Banks actual capital amounts and related ratios as of December 31, 2008 and 2007, compared to
required regulatory minimum capital ratios and the ratio required to be considered well capitalized. As of December 31, 2008 the Tier I Leverage Capital ratio was 14.7%, below the FDIC mandated 15%, and as a result, in January 2009, $1,750,000
of capital was contributed by the Company to Medallion Bank. Otherwise, Medallion Bank meets all capital adequacy requirements to which it is subject, and is well-capitalized as of December 31, 2008.



|                        |  |            |        |   |                  |   |        |                  |  |   |         |   |  |   |         |  
|----------------------- |  | ---------- | ------ | - | ---------------- | - | ------ | ---------------- |  | - | ------- | - |  | - | ------- | -
|                        |  | Regulatory |        |   | December 31,2008 |   |        | December 31,2007 | 
|(Dollars in Thousands)  |  | Minimum    |        |   | Well-capitalized |   |        |                 
|Tier I capital          |  | $          | 17,383 |   |                  | $ | 21,729 |                  |  | $ | 63,808  |   |  | $ | 54,869  |  
|Total capital           |  |            | 33,447 |   |                  |   | 41,809 |                  |  |   | 69,105  |   |  |   | 59,109  |  
|Average assets          |  |            |       |   |                  |   |       |                  |  |   | 434,585 |   |  |   | 347,111 |  
|Risk-weighted assets    |  |            |       |   |                  |   |       |                  |  |   | 418,089 |   |  |   | 336,103 |  
|Leverage ratio(1)       |  |            | 4      | % |                  |   | 5      | %                |  |   | 14.7    | % |  |   | 15.8    | %
|Tier I capital ratio(2) |  |            | 4      |   |                  |   | 6      |                  |  |   | 15.2    |   |  |   | 16.3    |  
|Total capital ratio(2)  |  |            | 8      |   |                  |   | 10     |                  |  |   | 16.5    |   |  |   | 17.6    |  



|(1) | Calculated by dividing Tier I capital by average assets.
|--- | --------------------------------------------------------



|(2) | Calculated by dividing Tier I or total capital by risk-weighted assets.
|--- | -----------------------------------------------------------------------



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(5) FUNDS BORROWED

The outstanding balances of funds borrowed were as follows:



|                          |  |                                                      |         |                  |   |                  |  |                  |        |      |   |            |  |   |         |  |   |        |  |   |         |  |   |         |  |      |  
|------------------------- |  | ---------------------------------------------------- | ------- | ---------------- | - | ---------------- |  | ---------------- | ------ | ---- | - | ---------- |  | - | ------- |  | - | ------ |  | - | ------- |  | - | ------- |  | ---- | -
|                          |  | Payments Due for the Fiscal Year Ending December 31, |         | December 31,2008 |   | December 31,2007 |  | InterestRate (1) |       
|(Dollars in thousands)    |  | 2009                                                 |         | 2010             |   | 2011             |  | 2012             |        | 2013 |   | Thereafter |  |   |        
|Revolving lines of credit |  | $                                                    | 221,533 |                  | $ |                 |  | $                |       |      | $ |           |  | $ | 93,325  |  | $ |       |  | $ | 314,858 |  | $ | 411,449 |  | 3.28 | %
|SBA debentures            |  |                                                      |        |                  |   |                 |  |                  | 17,985 |      |   | 13,500     |  |   | 19,450  |  |   | 37,315 |  |   | 88,250  |  |   | 77,250  |  | 6.10 |  
|Preferred securities      |  |                                                      |        |                  |   |                 |  |                  |       |      |   |           |  |   |        |  |   | 33,000 |  |   | 33,000  |  |   | 33,000  |  | 7.68 |  
|Notes payable to banks    |  |                                                      | 15,326  |                  |   | 326              |  |                  | 10,890 |      |   |           |  |   |        |  |   |       |  |   | 26,542  |  |   | 20,850  |  | 4.64 |  
|                          |  |                                                      |         |                  |   |                  |  |                  |        |      |   |            |  |   |         |  |   |        |  |   |         |  |   |         |  |      |  
|Total                     |  | $                                                    | 236,859 |                  | $ | 326              |  | $                | 28,875 |      | $ | 13,500     |  | $ | 112,775 |  | $ | 70,315 |  | $ | 462,650 |  | $ | 542,549 |  | 4.20 |  
|                          |  |                                                      |         |                  |   |                  |  |                  |        |      |   |            |  |   |         |  |   |        |  |   |         |  |   |         |  |      |  



|(1) | Weighted average contractual rate as of December 31, 2008.
|--- | ----------------------------------------------------------

(A) REVOLVING LINES OF CREDIT

In December 2008, Trust III entered into a revolving line of credit agreement with DZ
Bank, to provide up to $200,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC (DZ line), of which $93,325,000 was outstanding at December 31, 2008. Borrowings under Trust IIIs revolving line of
credit are collateralized by Trust IIIs assets. MFC is the servicer of the loans owned by Trust III. The DZ line includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are
not met, MFC can be replaced as the servicer. The DZ line matures in December 2013. The interest rate is the lesser of a pooled short-term commercial paper rate (which approximates LIBOR), 30 day LIBOR (0.44% at December 31, 2008) plus 0.75%,
or 90 day LIBOR (1.43% at December 31, 2008) plus 0.50%; plus 0.95%.

In December 2006, and as renegotiated in December 2007 and
November 2008, Trust II entered into a revolving line of credit agreement with Citibank N.A., to provide up to $250,000,000 of financing through a commercial paper conduit to acquire medallion loans from MFC (Citi line), of which $221,533,000 was
outstanding at December 31, 2008. In November 2008 the line of credit was reduced to $225,000,000. Borrowings under Trust IIs revolving line of credit are collateralized by Trust IIs assets. MFC is the servicer of the loans owned by
Trust II. The Citi line includes a borrowing base covenant and rapid amortization in certain circumstances. In addition, if certain financial tests are not met, MFC can be replaced as the servicer. The Citi line matures in November 2009. The
interest rate is a pooled short-term commercial paper rate, which approximates LIBOR (0.44% at December 31, 2008), plus 0.82% with a facility fee of 0.15% on the aggregate Citi line, and prior to November 2008 was plus 0.47% with a facility fee
of 0.15%.

In September 2002, and as renegotiated in September 2003, January 2005, January 2006, September 2006, and
December 2006, the Trust entered into a revolving line of credit agreement (amended) with Merrill Lynch Commercial Finance Corp., as successor to Merrill Lynch Bank, USA (MLB) to provide up to $375,000,000 of financing to acquire medallion loans
from MFC (MLB line), which was paid off in December 2008.

Based on current market conditions, we expect that Citibank may not extend the
credit facility beyond its current maturity date in November 2009. We have available liquidity of $106,675,000 under our revolving credit agreement with DZ Bank. We also generate liquidity through deposits generated at Medallion Bank, borrowing
arrangements with other banks, and through the issuance of SBA debentures, as well as from cash flow from operations. In addition, we may choose to participate a greater portion of our loan portfolio to third parties. We are actively seeking
additional sources of liquidity, including sources of liquidity to repay our borrowings under the Citibank line; however, given current market conditions, we cannot assure you that we will be able to secure additional liquidity on terms favorable to
us or at all. If that occurs, we may decline to underwrite lower yielding loans in order to conserve capital until credit conditions in the market become more favorable; or we may be required to dispose of assets when we would not otherwise do so,
and at prices which may be below the net book value of such assets in order for us to repay indebtedness on a timely basis.



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##### Table of Contents

(B) SBA DEBENTURES

In September 2006, the SBA approved a $6,000,000 commitment for FSVC to issue additional debentures to the SBA during a four year period upon payment of
a 1% fee and the infusion of $2,000,000 of additional capital. In March 2006, the SBA approved a $13,500,000 commitment for MCI to issue additional debentures to the SBA during a four year period upon payment of a 1% fee and the infusion of
$6,750,000 of additional capital. In November 2003, the SBA approved an $8,000,000 commitment for FSVC, and during 2001, the SBA approved $36,000,000 each in commitments for FSVC and MCI. As of December 31, 2008, $91,000,000 of commitments had
been fully utilized, and $8,500,000 was available for borrowing.

The notes are collateralized by substantially all the Companys
assets and are subject to the terms and conditions of agreements with the SBA which, among other things, restrict stock redemptions, disposition of assets, new indebtedness, dividends or distributions, and changes in management, ownership,
investment policy, or operations. The debentures have been issued in various tranches for terms of ten years with interest payable semiannually.

(C) PREFERRED SECURITIES, NOTES PAYABLE TO BANKS, AND MARGIN LOANS

In April 2008, certain operating subsidiaries of
MFC entered into an aggregate $1,800,000 of note agreements with State Bank of Long Island (SBLI). These agreements are collateralized by certain taxicab medallions owned by Medallion Chicago of which $1,767,000 was outstanding at December 31,
2008. The note agreements bear interest at 5.50%, payable monthly. The notes mature May 1, 2011 and are guaranteed by both the Company and MFC. Principal and interest payments of $12,000 are due monthly, with the balance due at maturity.

In June 2007, the Company issued and sold $36,083,000 aggregate principal amount of unsecured junior subordinated notes to Fin Trust
which, in turn, sold $35,000,000 of preferred securities to Merrill Lynch International and issued 1,083 shares of common stock to the Company. The notes bear a fixed rate of interest of 7.68% to September 2012, and thereafter a variable rate of
interest of 90 day LIBOR plus 2.125%. The notes mature in September 2037, and are prepayable at par on or after September 6, 2012. Interest is payable quarterly in arrears. The terms of the preferred securities and the notes are substantially
identical. At December 31, 2008, $33,000,000 was outstanding on the preferred securities. In December 2007, the Company was able to acquire $2,000,000 of the preferred securities for $1,300,000, realizing a gain of $700,000 in a transaction
with a third party investor.

In March 2007, the Company entered into a margin loan agreement with Smith Barney, a subsidiary of Citicorp.
The margin loan was secured by the pledge of short-term, high-quality investment securities held by the Company, and was generally available at 99% of the current fair market value of the securities. The margin loan bore interest at LIBOR (0.44% at
December 31, 2008) plus 0.35%. As of December 31, 2008, $0 had been drawn down under this margin loan.

In December 2006, the
Company entered into a margin loan agreement with Bear Stearns & Co. Inc. The margin loan was secured by the pledge of short-term, high-quality investment securities held by the Company, and was generally available at 99% of the current
fair market value of the securities. The margin loan bore interest at LIBOR (0.44% at December 31, 2008) plus 0.50%. This line expired during 2008.

In December 2006, certain operating subsidiaries of MFC entered into an aggregate $966,000 of note agreements with New York Commercial Bank, which was increased by $756,000 in January 2007, by $2,250,000 in May 2007,
and by $1,572,000 in May 2008 to an aggregate of $5,544,000. These agreements are collateralized by certain taxicab medallions owned by Medallion Chicago of which $5,457,000 was outstanding at December 31, 2008. The note agreements bear
interest at 5.50%, payable monthly. The notes mature May 14, 2011, and are guaranteed by both the Company and MFC. Principal and interest payments of $38,000 are due monthly, with the balance due at maturity.

In October 2006, certain operating subsidiaries of MFC entered into an aggregate $840,000 of note agreements with Metropolitan Bank of New York, which
was increased by $2,250,000 in May 2007 and by $1,302,000 in June 2008, to an aggregate of $4,392,000. These agreements are collateralized by certain taxicab medallions owned by Medallion Chicago of which $4,318,000 was outstanding at
December 31, 2008. The note agreements bear interest at 5.75%, payable monthly. The notes mature July 1, 2011 and are guaranteed by MFC. Principal and interest payments of $33,000 are due monthly, with the balance due at maturity.

In January 2005, MFC entered into a $4,000,000 revolving note agreement with New York Commercial Bank, formerly known as Atlantic Bank of
New York that matured on December 1, 2005, and which maturity was extended by New York Commercial Bank to August 1, 2009. On March 6, 2006, the line of credit was increased to $6,000,000, and was further increased to $8,000,000 in
March 2007. The line is secured by medallion loans of MFC that are in process of being sold to the Trusts,



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##### Table of Contents

any draws being payable from the receipt of proceeds from the sale. The line bears interest at the prime rate (3.25% at December 31, 2008) minus 0.25%,
payable monthly. As of December 31, 2008, $0 had been drawn down under this line.

On April 26, 2004, the Company entered into a
$15,000,000 revolving note agreement with Sterling National Bank that was further extended to July 1, 2009 and was increased to $20,000,000. The line is secured by certain pledged assets of the Company, and is subject to periodic borrowing base
requirements. Effective August 2006, the line bears interest, payable monthly, at LIBOR (0.44% at December 31, 2008) plus 2.0% with no unused fee, and prior to that was at the prime rate, and was subject to an unused fee of 0.125% (see Note
18). As of December 31, 2008, $15,000,000 had been drawn down under this line.

(D) COVENANT COMPLIANCE

In the normal course of business, the Company and its subsidiaries enter into agreements, or are subject to regulatory requirements, that result in loan
restrictions. Certain of our debt agreements contain restrictions that require the Company to maintain certain financial ratios, including debt to equity and minimum net worth. In addition, the Companys wholly-owned subsidiary Medallion Bank
is subject to regulatory requirements related to the declaration of dividends (see Note 18).

(6) STOCK OPTIONS

The Company has a stock option plan (2006 Stock Option Plan) available to grant both incentive and nonqualified stock options to employees. The 2006 Stock
Option Plan, which was approved by the Board of Directors on February 15, 2006 and shareholders on June 16, 2006, provides for the issuance of a maximum of 800,000 shares of common stock of the Company. At December 31, 2008, 256,732
shares of the Companys common stock remained available for future grants. The 2006 Stock Option Plan is administered by the Compensation Committee of the Board of Directors. The option price per share may not be less than the current market
value of the Companys common stock on the date the option is granted. The term and vesting periods of the options are determined by the Compensation Committee, provided that the maximum term of an option may not exceed a period of ten years.

The Companys Board of Directors approved a new non-employee director stock option plan (the 2006 Director Plan) on February 15,
2006, which was approved by shareholders on June 16, 2006, and on which exemptive relief to implement the 2006 Director Plan was received from the SEC on August 28, 2007. The 2006 Director Plan provides for an automatic grant of options to
purchase 9,000 shares of the Companys common stock to an Eligible Director upon election to the Board, with an adjustment for directors who are elected to serve less than a full term. A total of 100,000 shares of the Companys common
stock are issuable under the 2006 Director Plan. At December 31, 2008, 37,000 shares of the Companys common stock remained available for future grants. The option price per share may not be less than the current market value of the
Companys common stock on the date the option is granted. Options granted under the 2006 Director Plan are exercisable annually, as defined in the 2006 Director Plan. The term of the options may not exceed ten years.

The Companys 1996 Stock Option Plan and 1996 Director Plan terminated on May 21, 2006 and no additional shares are available for future
issuance. At December 31, 2008, 1,729,187 shares of the Companys common stock were outstanding under the 1996 and 2006 plans, of which 1,169,585 shares were exercisable.



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The fair value of each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. The weighted average fair value of options granted was $1.11, $1.93, and $2.25 per share for the years ended December 31, 2008, 2007, and 2006. The following assumptions were used for the shares granted during 2008, 2007,
and 2006.



|                                    |  |                         |   |  |       |   |  |       |  
|----------------------------------- |  | ----------------------- | - |  | ----- | - |  | ----- | -
|                                    |  | Year ended December 31, |  
|                                    |  | 2008                    |   |  | 2007  |   |  | 2006  |  
|Risk free interest rate             |  | 3.00                    | % |  | 4.92  | % |  | 4.75  | %
|Expected dividend yield             |  | 8.00                    |   |  | 8.00  |   |  | 8.00  |  
|Expected life of option in years(1) |  | 5.98                    |   |  | 5.88  |   |  | 7.00  |  
|Expected volatility(2)              |  | 30.00                   |   |  | 35.00 |   |  | 35.00 |  



|(1) | Expected life is calculated using the simplified method.
|--- | --------------------------------------------------------



|(2) | We determine our expected volatility using the Black-Scholes option pricing model based on our historical volatility.
|--- | ---------------------------------------------------------------------------------------------------------------------

The following table presents the activity for the stock option program under the 1996 and 2006 Stock Option Plans and the 1996 and 2006 Director Plans
for the years ended December 31, 2008, 2007, and 2006.



|                                    |  |                  |   |  |                        |             |                               |   |      
|----------------------------------- |  | ---------------- | - |  | ---------------------- | ----------- | ----------------------------- | - | -----
|                                    |  | Number ofOptions |   |  | ExercisePrice PerShare |             | WeightedAverageExercise Price
|Outstanding at December 31, 2005    |  | 1,654,404        |   |  | $                      | 3.50-29.25  |                               | $ | 10.21
|Granted                             |  | 207,162          |   |  |                        | 13.06-13.06 |                               |   | 13.06
|Cancelled                           |  | (151,918         | ) |  |                        | 4.85-29.25  |                               |   | 17.03
|Exercised(1)                        |  | (253,118         | ) |  |                        | 3.70-8.40   |                               |   | 4.94 
|                                    |  |                  |   |  |                        |             |                               |   |      
|Outstanding at December 31, 2006    |  | 1,456,530        |   |  |                        | 3.50-29.25  |                               |   | 10.82
|Granted                             |  | 209,674          |   |  |                        | 10.76-11.24 |                               |   | 11.11
|Cancelled                           |  | (95,499          | ) |  |                        | 8.51-13.06  |                               |   | 11.78
|Exercised(1)                        |  | (102,650         | ) |  |                        | 3.87-8.51   |                               |   | 6.30 
|                                    |  |                  |   |  |                        |             |                               |   |      
|Outstanding at December 31, 2007    |  | 1,468,055        |   |  |                        | 3.50-29.25  |                               |   | 11.12
|Granted                             |  | 429,918          |   |  |                        | 7.79-9.99   |                               |   | 9.16 
|Cancelled                           |  | (107,736         | ) |  |                        | 6.50-29.25  |                               |   | 20.33
|Exercised(1)                        |  | (61,050          | ) |  |                        | 3.87-7.03   |                               |   | 5.79 
|                                    |  |                  |   |  |                        |             |                               |   |      
|Outstanding at December 31, 2008(2) |  | 1,729,187        |   |  | $                      | 3.50-18.75  |                               | $ | 10.25
|                                    |  |                  |   |  |                        |             |                               |   |      
|Options exercisable at              |  |                  |   |  |                        |             |                               |   |      
|December 31, 2006                   |  | 1,233,512        |   |  | $                      | 3.50-29.25  |                               | $ | 10.79
|December 31, 2007                   |  | 1,206,190        |   |  |                        | 3.50-29.25  |                               |   | 11.13
|December 31, 2008(2)                |  | 1,169,585        |   |  |                        | 3.50-18.75  |                               |   | 9.70 



|(1) | The aggregate intrinsic value, which represents the difference between the price of the Companys common stock at the exercise date and the related exercise price of the
underlying options, was $242,000, $523,000, and $1,186,000 for 2008, 2007, and 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The aggregate intrinsic value, which represents the difference between the price of the Companys common stock at December 31, 2008 and the related exercise price of the
underlying options, was $1,032,000 for outstanding options and $1,032,000 for exercisable options as of December 31, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table presents the activity for the unvested options outstanding under the plan for the year ended December 31, 2008.



|                                 |  |                  |   |  |                         |            |                                |   |      
|-------------------------------- |  | ---------------- | - |  | ----------------------- | ---------- | ------------------------------ | - | -----
|                                 |  | Number ofOptions |   |  | Exercise PricePer Share |            | Weighted AverageExercise Price
|Outstanding at December 31, 2007 |  | 261,865          |   |  | $                       | 8.51-13.06 |                                | $ | 11.08
|Granted                          |  | 429,918          |   |  |                         | 7.79-9.99  |                                |   | 9.16 
|Cancelled                        |  | (16,266          | ) |  |                         | 9.22-11.21 |                                |   | 10.87
|Vested                           |  | (115,915         | ) |  |                         | 7.79-13.06 |                                |   | 10.63
|                                 |  |                  |   |  |                         |            |                                |   |      
|Outstanding at December 31, 2008 |  | 559,602          |   |  | $                       | 7.79-13.06 |                                | $ | 9.70 
|                                 |  |                  |   |  |                         |            |                                |   |      

The fair value of the options vested was $4,000, $510,000, and $1,665,000 in 2008, 2007, and 2006.



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The following table summarizes information regarding options outstanding and options exercisable at
December 31, 2008 under the 1996 and 2006 Stock Option Plans and the 1996 and 2006 Director Plans.



|                        |             |                                     |           |                                     |      |                |   |                            |  |                                   |  |                |  |   |      
|----------------------- | ----------- | ----------------------------------- | --------- | ----------------------------------- | ---- | -------------- | - | -------------------------- |  | --------------------------------- |  | -------------- |  | - | -----
|                        |             | Options OutstandingWeighted average |           | Options ExercisableWeighted average
|Range of ExercisePrices |             | Shares atDecember 31,2008           |           | Remainingcontractual lifein years   |      | Exercise price |   | Shares atDecember 31, 2008 |  | Remainingcontractual life inyears |  | Exercise price
|$                       | 3.50-5.51   |                                     | 377,650   |                                     | 3.54 |                | $ | 4.91                       |  | 377,650                           |  | 3.54           |  | $ | 4.91 
|                        | 6.89-13.06  |                                     | 1,034,655 |                                     | 7.54 |                |   | 10.06                      |  | 475,053                           |  | 6.00           |  |   | 10.49
|                        | 14.63-15.56 |                                     | 26,948    |                                     | 1.93 |                |   | 14.98                      |  | 26,948                            |  | 1.93           |  |   | 14.98
|                        | 17.25-18.75 |                                     | 289,934   |                                     | 0.42 |                |   | 17.41                      |  | 289,934                           |  | 0.42           |  |   | 17.41
|                        |             |                                     |           |                                     |      |                |   |                            |  |                                   |  |                |  |   |      
|$                       | 3.50-18.75  |                                     | 1,729,187 |                                     | 5.39 |                |   | 10.25                      |  | 1,169,585                         |  | 3.73           |  |   | 10.51
|                        |             |                                     |           |                                     |      |                |   |                            |  |                                   |  |                |  |   |      

(7) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following table presents the Companys quarterly results of operations for the years ended December 31, 2008, 2007 and 2006.



|                                                                      |  |          |        |   |         |   |              |  |             |        |  |   |       
|--------------------------------------------------------------------- |  | -------- | ------ | - | ------- | - | ------------ |  | ----------- | ------ |  | - | ------
|(Dollars in thousands except per share data)                          |  | March 31 |        |   | June 30 |   | September 30 |  | December 31
|2008 Quarter Ended                                                    |  |          |        |   |         |   |              |  |             |        |  |   |       
|Investment income                                                     |  | $        | 14,444 |   |         | $ | 12,730       |  | $           | 11,743 |  | $ | 13,367
|Net investment income (loss) after income taxes                       |  |          | 3,397  |   |         |   | 3,825        |  |             | 3,425  |  |   | 4,443 
|Net increase in net assets resulting from operations                  |  |          | 3,921  |   |         |   | 4,377        |  |             | 4,118  |  |   | 2,832 
|Net increase in net assets resulting from operations per common share |  |          |        |   |         |   |              |  |             |        |  |   |       
|Basic                                                                 |  | $        | 0.22   |   |         | $ | 0.25         |  | $           | 0.23   |  | $ | 0.16  
|Diluted                                                               |  |          | 0.22   |   |         |   | 0.25         |  |             | 0.23   |  |   | 0.16  
|                                                                      |  |          |        |   |         |   |              |  |             |        |  |   |       
|2007 Quarter Ended                                                    |  |          |        |   |         |   |              |  |             |        |  |   |       
|Investment income                                                     |  | $        | 10,439 |   |         | $ | 13,157       |  | $           | 13,555 |  | $ | 14,242
|Net investment income (loss) after income taxes                       |  |          | (395   | ) |         |   | 1,618        |  |             | 1,555  |  |   | 2,520 
|Net increase in net assets resulting from operations                  |  |          | 3,780  |   |         |   | 4,272        |  |             | 3,602  |  |   | 3,782 
|Net increase in net assets resulting from operations per common share |  |          |        |   |         |   |              |  |             |        |  |   |       
|Basic                                                                 |  | $        | 0.22   |   |         | $ | 0.24         |  | $           | 0.21   |  | $ | 0.22  
|Diluted                                                               |  |          | 0.21   |   |         |   | 0.24         |  |             | 0.20   |  |   | 0.21  
|                                                                      |  |          |        |   |         |   |              |  |             |        |  |   |       
|2006 Quarter Ended                                                    |  |          |        |   |         |   |              |  |             |        |  |   |       
|Investment income                                                     |  | $        | 10,014 |   |         | $ | 9,338        |  | $           | 9,630  |  | $ | 10,653
|Net investment income after income taxes                              |  |          | 1,727  |   |         |   | 329          |  |             | 144    |  |   | 965   
|Net increase in net assets resulting from operations                  |  |          | 1,787  |   |         |   | 4,076        |  |             | 1,401  |  |   | 5,844 
|Net increase in net assets resulting from operations per common share |  |          |        |   |         |   |              |  |             |        |  |   |       
|Basic                                                                 |  | $        | 0.10   |   |         | $ | 0.24         |  | $           | 0.08   |  | $ | 0.34  
|Diluted                                                               |  |          | 0.10   |   |         |   | 0.23         |  |             | 0.08   |  |   | 0.33  
|                                                                      |  |          |        |   |         |   |              |  |             |        |  |   |       

(8) RECENTLY ISSUED ACCOUNTING STANDARDS

In October 2008, the FASB issued FSP FAS 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not
Active. The FSP clarifies the application of SFAS No. 157, Fair Value Measurement, and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial
asset is not active. The FSP is effective upon issuance, including for prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application should be accounted for as a
change in accounting estimate; however, the disclosure provisions for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. We do not believe that this pronouncement
will have an impact on our financial condition or results of operations.

In April 2008, the FASB issued FSP No. FAS 142-3,
Determination of the Useful Life of Intangible Assets (FAS 142-3), which amends the factors that should be considered in developing renewal or extension assumptions used for purpose of determining



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the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). FAS
142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141(R), Business
Combinations, and other US generally accepted accounting principles. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier application is not permitted. The Company believes the impact of adopting FAS
142-3 will not have a material effect on the Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 requires specific disclosures regarding the location and amounts of derivative instruments in the Companys financial statements; how
derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Companys financial position, financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods after November 15, 2008. Early application is permitted. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB
No. 51, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary by clarifying that a noncontrolling interest in a subsidiary is an ownership interest
in the consolidated entity that should be reported as a component of equity. It requires that changes in a parents ownership interest while the parent retains its controlling interest be accounted for as equity transactions and any retained
noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008 and shall be applied prospectively, except
for the presentation and disclosure requirements which shall be applied retrospectively. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business Combinations which establishes principles and requirements on
how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date fair value, as well as the recognition and measurement
of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and financial effects of the business combination. Acquisition costs associated
with the business combination will generally be expensed as incurred. SFAS No. 141R is effective prospectively to business combinations in fiscal years beginning on or after December 15, 2008. We do not believe that this pronouncement will
have an impact on our financial condition or results of operations.

(9) SEGMENT REPORTING

We have one business segment, our lending and investing operations. This segment originates and services medallions, secured commercial, and consumer loans, and invests
in both marketable and nonmarketable securities.

(10) COMMITMENTS AND CONTINGENCIES

(a) Employment Agreements

The
Company has employment agreements with certain key officers for either a three or five-year term. Annually, the contracts with a five-year term will renew for new five-year terms unless prior to the end of the first year, either the Company or the
executive provides notice to the other party of its intention not to extend the employment period beyond the current five-year term. In the event of a change in control, as defined, during the employment period, the agreements provide for severance
compensation to the executive in an amount equal to the balance of the salary, bonus, and value of fringe benefits which the executive would be entitled to receive for the remainder of the employment period (see Note 18).



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Employment agreements expire at various dates through 2013. At December 31, 2008, minimum payments
under employment agreements are as follows:



|                       |  |   |      
|---------------------- |  | - | -----
|(Dollars in thousands) |  |  
|2009                   |  | $ | 1,287
|2010                   |  |   | 799  
|2011                   |  |   | 664  
|2012                   |  |   | 664  
|2013                   |  |   | 288  
|2014 and thereafter    |  |   |     
|                       |  |   |      
|Total                  |  | $ | 3,702
|                       |  |   |      

(b) Other Commitments

The Company had portfolio commitments outstanding of $5,478,000 at December 31, 2008. Generally, commitments are on the same terms as loans to or
investments in existing borrowers or investees, and generally have fixed expiration dates. Since some commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. In
addition, the Company had approximately $45,460,000 of undisbursed funds relating to revolving credit facilities with borrowers. These amounts may be drawn upon at the customers request if they meet certain credit requirements.

Commitments for leased premises expire at various dates through June 30, 2016. At December 31, 2008, minimum rental commitments for
non-cancelable leases are as follows:



|                       |  |   |      
|---------------------- |  | - | -----
|(Dollars in thousands) |  |  
|2009                   |  | $ | 1,182
|2010                   |  |   | 1,126
|2011                   |  |   | 1,126
|2012                   |  |   | 1,048
|2013                   |  |   | 907  
|2014 and thereafter    |  |   | 2,266
|                       |  |   |      
|Total                  |  | $ | 7,655
|                       |  |   |      

Rent expense was $1,271,000, $1,353,000, and $1,266,000 for the years ended December 31,
2008, 2007, and 2006.

(c) Litigation

The Company and its subsidiaries become defendants to various legal proceedings arising from the normal course of business. In the opinion of management, based on the advice of legal counsel, there is no proceeding
pending, or to the knowledge of management threatened, which in the event of an adverse decision would result in a material adverse impact on the financial condition or results of operations of the Company.

(11) RELATED PARTY TRANSACTIONS

Certain directors,
officers, and shareholders of the Company are also directors and officers of its wholly-owned subsidiaries, MFC, MCI, FSVC, and Medallion Bank, as well as of certain portfolio investment companies. Officer salaries are set by the Board of Directors
of the Company (see Note 18).

A member of the Board of Directors of the Company since 1996 is also of counsel in the Companys
primary law firm. Amounts paid to the law firm were approximately $404,000, $837,000, and $542,000 in 2008, 2007, and 2006.



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##### Table of Contents

During 2008, 2007, and 2006 we serviced $204,055,000, $163,816,000 and $155,099,000 of loans for
Medallion Bank. Included in net investment income were amounts as described below that were received from Medallion Bank for services rendered in originating and servicing loans, and also for reimbursement of certain expenses incurred on their
behalf:



|                                    |  |                         |       |      |   |       |  |   |      
|----------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                    |  | Year ended December 31,
|(Dollars in thousands)              |  | 2008                    |       | 2007 |   | 2006 
|Servicing fees                      |  | $                       | 1,492 |      | $ | 1,395 |  | $ | 1,327
|Loan origination fees               |  |                         | 804   |      |   | 452   |  |   | 381  
|Reimbursement of operating expenses |  |                         | 192   |      |   | 173   |  |   | 167  
|Interest income                     |  |                         | 5     |      |   | 7     |  |   | 16   
|                                    |  |                         |       |      |   |       |  |   |      
|Total other income                  |  | $                       | 2,493 |      | $ | 2,027 |  | $ | 1,891
|                                    |  |                         |       |      |   |       |  |   |      

SPAC

Included in investments in controlled subsidiaries is $6,567,000 of investments in and loans to a special purpose acquisition company, Sports Properties Acquisition Corp. (the SPAC), 18%-owned by the Company which,
consummated its initial public offering (IPO) in January 2008. Immediately prior to the IPO, the Company purchased warrants for $5,900,000 from the SPAC in a private placement which will allow it to acquire 5,900,000 additional shares of common
stock in the future under various conditions and restrictions. If the SPAC is unable consummate an approved business combination within 24 months of the IPO, the Companys entire investment in the SPAC will become worthless as all of the assets
of the SPAC will be used to repay the public stockholders.

The Company has entered into a consulting agreement with ProEminent Sports,
whose principal acts as a consultant to the Company for sports related investments and, included within the scope of his duties, also provides services to the SPAC, including serving as its Chief Executive Officer, and assisting generally with the
SPACs offering and business combination. The Company pays ProEminent Sports a monthly fee of $20,000. Following a business combination, in the event the CEO is not offered employment or a board position with the SPAC, the Company has agreed to
continue the consulting arrangement for at least an additional twelve months. The Company had previously entered into a consulting agreement with GamePlan, LLC which was terminated as of June 1, 2008, when the SPAC entered into its own
consulting agreement with GamePlan, LLC. The Company had paid GamePlan, LLC a monthly fee of $10,000.

The Company has agreed to indemnify
the SPAC in the event of the SPACs liquidation for all claims of any vendors, service providers, or other entities that are owed money by the SPAC for services rendered or contracted for, or for products sold to the SPAC, including claims of
any prospective acquisition targets. In addition, the Company, as the primary sponsor of the SPAC, may advance additional funds for operational and acquisition-related purposes, which may be repaid from the ultimate disposition of the Companys
equity investment in the SPAC.

Certain of the Companys officers and directors also serve as officers and directors of the SPAC, and
in that role entered into agreements with the SPAC and its underwriter(s) to present to the SPAC, prior to presentation to any other person or entity, opportunities to acquire entities, until the earlier of the SPACs consummation of a business
combination, the SPACs liquidation, or until such time as they cease to be an officer or director of the SPAC. The Company entered into a similar agreement.

SPAC 2

Included in deferred costs in other assets is $759,000 of investments in and loans to a
special purpose acquisition company, National Security Solutions, Inc. (SPAC 2), 74%-owned by the Company which is currently in organization prior to registration with the SEC to register units for sale in an initial public offering. Up to $375,000
of this may be repayable upon completion of the offering or June 30, 2009, whichever is first. Prior to the offering, the Company will purchase warrants for $4,125,000 from SPAC 2 in a private placement which will allow it to acquire 4,125,000
additional shares of common stock. After the offering, the Company will own approximately 17% of SPAC 2s outstanding shares. If SPAC 2 is unable consummate an approved business combination within 24 months of its offering, the Companys
entire investment in SPAC 2 will become worthless as all of the assets of SPAC 2 will be used to repay the public stockholders.

The
Company will also agree to indemnify SPAC 2 in the event of SPAC 2s liquidation for all claims of any vendors, service providers, or other entities that are owed money by SPAC 2 for services rendered or contracted for, or for products sold to
SPAC 2, including claims of any prospective acquisition targets. In addition, the Company, as the majority owner of SPAC 2, may advance additional funds for operational and acquisition-related purposes, which may be repaid from the proceeds of the
offering or the ultimate disposition of the Companys equity investment in SPAC 2.



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Certain of the Companys officers and directors also serve as officers and directors of SPAC 2, and
in that role will enter into agreements with SPAC 2 and its underwriter(s) to present to SPAC 2, prior to presentation to any other person or entity, opportunities to acquire entities, until the earlier of SPAC 2s consummation of a business
combination, SPAC 2s liquidation, or until such time as they cease to be an officer or director of SPAC 2. The Company will also enter into a similar agreement.

(12) SHAREHOLDERS EQUITY

In November 2003, the Company announced a stock repurchase program
which authorized the repurchase of up to $10,000,000 of common stock during the following six months, with an option for the Board of Directors to extend the time frame for completing the purchases, which expires in April 2009. In November 2004, the
repurchase program was increased by an additional $10,000,000. As of December 31, 2008, 1,394,124 shares were repurchased for $12,681,000.

(13)
NONINTEREST INCOME AND OTHER OPERATING EXPENSES

The major components of noninterest income were as follows:



|                         |  |                         |       |      |   |       |  |   |      
|------------------------ |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                         |  | Year ended December 31,
|(Dollars in thousands)   |  | 2008                    |       | 2007 |   | 2006 
|Servicing fees           |  | $                       | 1,798 |      | $ | 1,436 |  | $ | 1,327
|Prepayment penalties     |  |                         | 1,343 |      |   | 460   |  |   | 782  
|Late charges             |  |                         | 294   |      |   | 277   |  |   | 228  
|Other                    |  |                         | 402   |      |   | 271   |  |   | 309  
|                         |  |                         |       |      |   |       |  |   |      
|Total noninterest income |  | $                       | 3,837 |      | $ | 2,444 |  | $ | 2,646
|                         |  |                         |       |      |   |       |  |   |      

Included in prepayment penalties in 2008 and 2006 was $718,000 and $629,000 related to the early
payoff of several large loans. The increase in servicing fees, from prior years primarily reflected the increased fees relating to servicing Medallion Banks growing portfolio. Included in the other noninterest income was $86,000 of management
fees paid by the SPAC investment in 2008.

The major components of other operating expenses were as follows:



|                                 |  |                         |       |      |   |       |  |   |      
|-------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                 |  | Year ended December 31,
|(Dollars in thousands)           |  | 2008                    |       | 2007 |   | 2006 
|Travel, meals, and entertainment |  | $                       | 620   |      | $ | 548   |  | $ | 491  
|Miscellaneous taxes              |  |                         | 546   |      |   | 436   |  |   | 274  
|Directors fees                   |  |                         | 471   |      |   | 345   |  |   | 492  
|Office expense                   |  |                         | 429   |      |   | 535   |  |   | 294  
|Depreciation and amortization    |  |                         | 387   |      |   | 457   |  |   | 415  
|Insurance                        |  |                         | 232   |      |   | 308   |  |   | 302  
|Telephone                        |  |                         | 225   |      |   | 205   |  |   | 194  
|Loan collection costs            |  |                         | 139   |      |   | 254   |  |   | 372  
|Other expenses                   |  |                         | 705   |      |   | 599   |  |   | 678  
|                                 |  |                         |       |      |   |       |  |   |      
|Total other operating expenses   |  | $                       | 3,754 |      | $ | 3,687 |  | $ | 3,512
|                                 |  |                         |       |      |   |       |  |   |      

Travel, meals, and entertainment increased due to an increase in investment development activities
in 2008. Miscellaneous taxes increased in 2008 due to recognizing a $113,000 tax refund received in 2007. Directors fees increased due to higher fees, expense reimbursements, and a higher number of meetings held in 2008. Office expenses were
higher in 2007 due to office repairs and maintenance expenses, and the disposal and writeoffs of certain assets. Depreciation and amortization decreased as more assets became fully depreciated. Loan collection costs have been steadily decreasing for
the last three years as the quality of the portfolio has improved. Other expenses increased from 2007 primarily reflecting higher bank fees and overall slight increase in miscellaneous expenses such as advertising, referral, and dues and
subscriptions in 2008.



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(14) SELECTED FINANCIAL RATIOS AND OTHER DATA

The following table provides selected financial ratios and other data:



|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|------------------------------------------------------------------- |  | ----------------------- | ------- | -- | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                                    |  | Year ended December 31, |        
|(Dollars in thousands, except per share data)                       |  | 2008                    |         |    | 2007 |   |         | 2006 |  |   | 2005    |   |  | 2004 |        
|Net share data                                                      |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net asset value at the beginning of the year                        |  | $                       | 9.86    |    |      | $ | 9.73    |      |  | $ | 9.69    |   |  | $    | 9.83    |   |  | $ | 8.89    |  
|Net investment income                                               |  |                         | 0.85    |    |      |   | 0.30    |      |  |   | 0.18    |   |  |      | 0.26    |   |  |   | 0.01    |  
|Income tax (provision) benefit                                      |  |                         | 0.00    |    |      |   | 0.00    |      |  |   | 0.00    |   |  |      | 0.00    |   |  |   | (0.01   | )
|Net realized gains (losses) on investments                          |  |                         | (0.21   | )  |      |   | 0.80    |      |  |   | 0.17    |   |  |      | 0.21    |   |  |   | 0.13    |  
|Net change in unrealized appreciation (depreciation) on investments |  |                         | 0.22    |    |      |   | (0.23   | )    |  |   | 0.39    |   |  |      | (0.08   | ) |  |   | 1.09    |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net increase in net assets resulting from operations                |  |                         | 0.86    |    |      |   | 0.87    |      |  |   | 0.74    |   |  |      | 0.39    |   |  |   | 1.22    |  
|Issuance of common stock                                            |  |                         |        |    |      |   | (0.01   | )    |  |   | (0.04   | ) |  |      | (0.06   | ) |  |   | 0.00    |  
|Repurchase of common stock                                          |  |                         |        |    |      |   | 0.01    |      |  |   |        |   |  |      | 0.03    |   |  |   | 0.05    |  
|Distribution of net investment income                               |  |                         | (0.76   | )  |      |   | (0.45   | )    |  |   | (0.44   | ) |  |      | (0.29   | ) |  |   | (0.14   | )
|Distribution of net realized gains on investments                   |  |                         |        |    |      |   | (0.31   | )    |  |   | (0.22   | ) |  |      | (0.21   | ) |  |   | (0.19   | )
|Other                                                               |  |                         | 0.01    |    |      |   | 0.02    |      |  |   |        |   |  |      |        |   |  |   |        |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Total increase (decrease) in net asset value                        |  |                         | 0.11    |    |      |   | 0.13    |      |  |   | 0.04    |   |  |      | (0.14   | ) |  |   | 0.94    |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Net asset value at the end of the year (1)                          |  | $                       | 9.97    |    |      | $ | 9.86    |      |  | $ | 9.73    |   |  | $    | 9.69    |   |  | $ | 9.83    |  
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Per share market value at beginning of year                         |  | $                       | 10.02   |    |      | $ | 12.37   |      |  | $ | 11.26   |   |  | $    | 9.70    |   |  | $ | 9.49    |  
|Per share market value at end of year                               |  |                         | 7.63    |    |      |   | 10.02   |      |  |   | 12.37   |   |  |      | 11.26   |   |  |   | 9.70    |  
|Total return (2)                                                    |  |                         | (16     | %) |      |   | (13     | %)   |  |   | 16      | % |  |      | 21      | % |  |   | 6       | %
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Ratios/supplemental data                                            |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  
|Average net assets                                                  |  | $                       | 174,082 |    |      | $ | 171,503 |      |  | $ | 167,528 |   |  | $    | 167,909 |   |  | $ | 162,843 |  
|Total expense ratio(3)                                              |  |                         | 24      | %  |      |   | 28      | %    |  |   | 23      | % |  |      | 21      | % |  |   | 18      | %
|Operating expenses to average net assets                            |  |                         | 9.95    |    |      |   | 10.40   |      |  |   | 8.91    |   |  |      | 10.11   |   |  |   | 9.97    |  
|Net investment income (loss) after taxes to average net assets      |  |                         | 8.67    |    |      |   | 3.09    |      |  |   | 1.89    |   |  |      | 2.73    |   |  |   | (0.01   | )
|                                                                    |  |                         |         |    |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |  



|(1) | Includes $0.08, $0.16, $0.08, $0.12, and $0.07 of undistributed net investment income per share as of December 31, 2008, 2007, 2006, 2005, and 2004, and $0.00 of undistributed
net realized gains per share for all years presented.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Total return is calculated by dividing the change in market value of a share of common stock during the year, assuming the reinvestment of dividends on the payment date, by the per
share market value at the beginning of the year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Total expense ratio represents total expenses (interest expense, operating expenses, and income taxes) divided by average net assets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

(15) EMPLOYEE BENEFIT PLANS

The Company has a 401(k)
Investment Plan (the 401(k) Plan) which covers all full-time and part-time employees of the Company who have attained the age of 21 and have a minimum of one year of service, including the employees of Medallion Bank. Under the 401(k) Plan, an
employee may elect to defer not less than 1% and no more than 15% of the total annual compensation that would otherwise be paid to the employee, provided, however, that employees contributions may not exceed certain maximum amounts determined
under the Internal Revenue Code. Employee contributions are invested in various mutual funds according to the directions of the employee. Beginning September 1, 1998, the Company elected to match employee contributions to the 401(k) Plan in an
amount per employee up to one-third of such employees contribution but in no event greater than 2% of the portion of such employees annual salary eligible for 401(k) Plan benefits. The Companys 401(k) plan expense, which including
amounts for the employees of Medallion Bank, was approximately $82,000, $98,000, and $59,000 for the years ended December 31, 2008, 2007, and 2006.

(16) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standard No. 107, Disclosures About
Fair Value of Financial Instruments (SFAS 107) requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or off-balance-sheet commitments, if practicable. The following methods and
assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes cannot be substantiated by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument.



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(a) Investments -The Companys investments are recorded at the estimated fair value of such
investments.

(b) Floating rate borrowings -Due to the short-term nature of these instruments, the carrying amount approximates
fair value.

(c) Commitments to extend credit -The fair value of commitments to extend credit is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference
between the current levels of interest rates and the committed rates. At December 31, 2008 and 2007, the estimated fair value of these off-balance-sheet instruments was not material.

(d) Fixed rate borrowings -The fair value of the debentures payable to the SBA is estimated based on current market interest rates for similar
debt.



|                       |  |                   |         |                   |   |                |  |            |         |  |   |        
|---------------------- |  | ----------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                       |  | December 31, 2008 |         | December 31, 2007
|(Dollars in thousands) |  | CarryingAmount    |         | Fair Value        |   | CarryingAmount |  | Fair Value
|Financial Assets       |  |                   |         |                   |   |                |  |            |         |  |   |        
|Investments            |  | $                 | 570,597 |                   | $ | 570,597        |  | $          | 653,046 |  | $ | 653,046
|Cash                   |  |                   | 32,075  |                   |   | 32,075         |  |            | 33,454  |  |   | 33,454 
|Financial Liabilities  |  |                   |         |                   |   |                |  |            |         |  |   |        
|Funds borrowed         |  |                   | 462,650 |                   |   | 462,650        |  |            | 542,549 |  |   | 542,549

(17) FAIR VALUE OF ASSETS AND LIABILITIES

Medallion adopted the provisions of SFAS No. 157 in the 2008 first quarter. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. Medallion accounts for a substantially all of its financial
instruments at fair value or considers fair value in its measurement, in accordance with the accounting guidance for investment companies. See Note 2 sections Fair Value of Assets and Liabilities and Investment Valuation for
a description of our valuation methodology which is unchanged during 2008.

In accordance with SFAS No. 157, Medallion has categorized
its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or
liabilities (level 1) and the lowest priority to unobservable inputs (level 3).

As required by SFAS No. 157, when the inputs used to
measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a
level 3 fair value measurement may include inputs that are observable (level 1 and 2) and unobservable (level 3). Therefore gains and losses for such assets and liabilities categorized within the level 3 table below may include changes in fair value
that are attributable to both observable inputs (level 1 and 2) and unobservable inputs (level 3).

Financial assets and liabilities
recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1.
Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Medallion has the ability to access (examples include active exchange-traded equity securities,
exchanged-traded derivatives, most US Government and agency securities, and certain other sovereign government obligations).

Level 2.Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs
include the following:



| | A) | Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);
| | -- | --------------------------------------------------------------------------------------------------



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| | B) | Quoted price for identical or similar assets or liabilities in non-active markets (for example, corporate and municipal bonds, which trade infrequently);
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | C) | Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and
currency swaps); and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | D) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or
liability (examples include certain residential and commercial mortgage-related assets, including loans, securities and derivatives).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect
managements own assumptions about the assumptions a market participant would use in pricing the assets or liability (examples include certain private equity investments, certain residential and commercial mortgage-related assets (including
loans, securities, and derivatives), and long-dated or complex derivatives including certain equity derivatives and long-dated options on gas and power).

A review of fair value hierarchy classification is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities.
Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers in/out of the level 3 category as of the beginning of the quarter in which the reclassifications occur.

The following table presents Medallions fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of
December 31, 2008.



|                                                               |  |         |     |         |   |         |  |       |         |  |   |        
|-------------------------------------------------------------- |  | ------- | --- | ------- | - | ------- |  | ----- | ------- |  | - | -------
|(Dollars in thousands)                                         |  | Level 1 |     | Level 2 |   | Level 3 |  | Total
|Assets                                                         |  |         |     |         |   |         |  |       |         |  |   |        
|Medallion loans                                                |  | $       |    |         | $ |        |  | $     | 402,964 |  | $ | 402,964
|Commercial loans                                               |  |         |    |         |   |        |  |       | 89,611  |  |   | 89,611 
|Investment in Medallion Bank and other controlled subsidiaries |  |         |    |         |   | 3,650   |  |       | 71,100  |  |   | 74,750 
|Equity investments                                             |  |         | 246 |         |   |        |  |       | 3,026   |  |   | 3,272  
|Other assets                                                   |  |         |    |         |   | 29,728  |  |       | 759     |  |   | 30,487 

Included in level 3 investments in other controlled subsidiaries is the investment in Medallion
Bank, the SPAC, and an investment in a start-up business engaged in media-buying consulting. Included in level 3 equity investments are unregistered shares of common stock in a publicly-held company as well as certain private equity positions in
non-marketable securities. Included in level 3 other assets is the investment in SPAC 2.

The following table provides a summary of changes
in fair value of Medallions level 3 financial assets and liabilities for the year ended December 31, 2008.



|                                                               |  |                  |                                          |                                                                |   |                          |                                   |       |   |                      |  |   |                  |   |                                 |    |        |   |  |   |      |   |  |   |         |  |   |        |  
|-------------------------------------------------------------- |  | ---------------- | ---------------------------------------- | -------------------------------------------------------------- | - | ------------------------ | --------------------------------- | ----- | - | -------------------- |  | - | ---------------- | - | ------------------------------- | -- | ------ | - |  | - | ---- | - |  | - | ------- |  | - | ------ | -
|                                                               |  | December 31,2007 |                                          | Total Realized and UnrealizedGains (Losses) Included in
Income |   |                          | Purchases,IssuancesandSettlements |       |   | TransfersIn (Out)(1) |  |   | December 31,2008 |   | AmountsRelatedto HeldAssets (2) |   
|(Dollars in thousands)                                         |  |                  | Appreciation(Depreciation)on Investments |                                                                |   | OtherRevenuesandExpenses |                                   | Total |   |                      |  |   |                 
|Assets                                                         |  |                  |                                          |                                                                |   |                          |                                   |       |   |                      |  |   |                  |   |                                 |    |        |   |  |   |      |   |  |   |         |  |   |        |  
|Medallion loans                                                |  | $                | 498,883                                  |                                                                | $ | 15                       |                                   |       | $ |                     |  | $ | 15               |   |                                 | ($ | 95,934 | ) |  | $ |     |   |  | $ | 402,964 |  | $ |       |  
|Commercial loans                                               |  |                  | 91,782                                   |                                                                |   | (3,613                   | )                                 |       |   |                     |  |   | (3,613           | ) |                                 |    | 1,442  |   |  |   |     |   |  |   | 89,611  |  |   | (3,138 | )
|Investment in Medallion Bank and other controlled subsidiaries |  |                  | 53,871                                   |                                                                |   | (2,231                   | )                                 |       |   |                     |  |   | (2,231           | ) |                                 |    | 18,818 |   |  |   | 642  |   |  |   | 71,100  |  |   | (2,231 | )
|Equity investments                                             |  |                  | 4,530                                    |                                                                |   | (1,574                   | )                                 |       |   |                     |  |   | (1,574           | ) |                                 |    | 70     |   |  |   |     |   |  |   | 3,026   |  |   | (1,994 | )
|Other assets                                                   |  |                  | 1,146                                    |                                                                |   |                         |                                   |       |   |                     |  |   |                 |   |                                 |    | 255    |   |  |   | (642 | ) |  |   | 759     |  |   |       |  



|(1) | The SPAC was reclassified during the nine months ended December 31, 2008 from other assets to investment in controlled subsidiaries upon consummation of the initial public
offering of the SPACs common stock.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Total realized and unrealized gains (losses) included in income for the year which relate to assets held as of December 31, 2008.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



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(18) SUBSEQUENT EVENTS  TROUBLED ASSETS RELIEF PROGRAM (TARP)

On February 27, 2009, Medallion Bank (the Bank) issued and sold, and the US Treasury purchased under the TARP Capital Purchase Program (the CPP),
(1) 11,800 shares of the Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, and (2) a warrant (the Warrant), which was immediately exercised, to purchase up to 590 shares of the Banks Fixed Rate Non-Cumulative
Perpetual Preferred Stock, Series B, for an aggregate purchase price of approximately $11,800,000 in cash. The liquidation preference of both Series is $1,000 per share.

The securities were sold in a private placement exempt from SEC registration.

Non-cumulative dividends on
the Series A shares will accrue on the liquidation preference at a rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, and the dividends on the Series B shares will accrue on the liquidation preference
at a rate of 9% per annum, both, if, as, and when declared by the Banks Board of Directors out of funds legally available thereof. The Preferred Shares have no maturity date and rank senior to the Banks common stock (and pari passu
with one another) with respect to the payment of dividends and distributions and amounts payable upon liquidation, dissolution, and winding up of the Bank. The Banks Articles of Amendments provide that, subject to the approval of the FDIC, the
Preferred Shares are redeemable at the option of the Bank at 100% of their liquidation preference plus declared and unpaid dividends, provided, however, that the Preferred Shares may be redeemed prior to February 27, 2012 only if (i) the
Bank has raised aggregate gross proceeds in one or more Qualified Equity Offerings, as defined, of at least $3,097,500 and (ii) the aggregate redemption price does not exceed the aggregate net proceeds from such offerings. The Series B shares
cannot be redeemed until the Series A shares have been redeemed.

On February 17, 2009, the American Recovery and Reinvestment Act of
2009 (the ARRA) was signed into law. The ARRA, among other things, directs the US Treasury to permit CPP participants to redeem the preferred stock issued under the CPP without first requiring a Qualified Equity Offering, upon consultation with the
appropriate Federal banking agency.

The agreements between the Bank and the US Treasury pursuant to which the Preferred Shares and the
Warrant were sold contain limitations on the payment of common stock dividends to a quarterly rate of $1.00 per share or $1,000,000, and on the Banks ability to repurchase its common stock, and subjects the Bank and the Company to certain of
the executive compensation limitations and requirements included in the Emergency Economic Stabilization Act of 2008 (the EESA). As a condition to the closing of the transaction, the Company and its senior executive officers have agreed to all terms
and conditions.

The ARRA amends the EESA to require the US Treasury to issue additional executive compensation standards applicable to CPP
participants (which may include parent companies such as the Company), which will include, among other things, the repayment by the senior executive officers and other highly compensated employees of bonus amounts if the bonus was based on
materially inaccurate financial information or other criteria and the prohibition of the payment or accrual of any bonus to the institutions highest paid executive officer except through restricted stock with delayed vesting and subject to
dollar limits. The ARRA further requires CPP participants to permit stockholders to vote on a non-binding resolution approving the institutions compensation of executives.

(19) SUBSEQUENT EVENTS  OTHER

On February 18, 2009, the Company entered into contracts to
purchase interest rate caps on a $132,000,000 notional value of principal from DZ Bank. The caps provide for payments to the Company if LIBOR (0.44% at December 31, 2008) exceeds 4%. The caps were purchased in three tranches expiring in six
months, one year, and two years, and in the aggregate cost $70,000, which cost will be carried in other assets on the balance sheet and amortized over the lives of the underlying contracts to interest expense.

On February 10, 2009, the Companys board of directors declared a $0.19 per share common stock dividend, payable on March 30, 2009 to
shareholders of record on March 13, 2009.

On February 2, 2009 the Companys revolving note agreement with Sterling National
Bank was amended to provide for an interest rate floor of 3%.



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##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2008



|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- |  | ----- |  | ------------ |  | ----- |  | ----------- |  | --------- | - |  | --------------- | - | ------- | ------------------ | ------- | 
|(Dollars in thousands)                                                                                                                                  |  | Industry |  | State |  | SecurityType |  | %Held |  | # ofInvest. |  | % ofTotal |   |  | InterestRate(1) |   |         | InvestmentBalances |        
|Medallion loans                                                                                                                                         |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|New York                                                                                                                                                |  |          |  |       |  |              |  |       |  | 1,027       |  | 53        | % |  | 6.04            | % |         | $                  | 304,306 | 
|Boston                                                                                                                                                  |  |          |  |       |  |              |  |       |  | 152         |  | 5         |   |  | 7.54            |   |         |                    | 31,283  | 
|Chicago                                                                                                                                                 |  |          |  |       |  |              |  |       |  | 186         |  | 5         |   |  | 7.15            |   |         |                    | 28,172  | 
|Newark                                                                                                                                                  |  |          |  |       |  |              |  |       |  | 180         |  | 5         |   |  | 8.17            |   |         |                    | 27,809  | 
|Cambridge                                                                                                                                               |  |          |  |       |  |              |  |       |  | 25          |  | 1         |   |  | 7.59            |   |         |                    | 4,387   | 
|Other                                                                                                                                                   |  |          |  |       |  |              |  |       |  | 27          |  | 1         |   |  | 7.40            |   |         |                    | 6,584   | 
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Total                                                                                                                                                   |  |          |  |       |  |              |  |       |  | 1,597       |  | 70        | % |  | 6.42            | % |         |                    | 402,541 | 
|Deferred loan acquisition costs                                                                                                                         |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   | 423     |                   
|Unrealized depreciation on loans                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |        |                   
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Medallion loans, net                                                                                                                                    |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 | $ | 402,964 |                   
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Commercial loans                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Secured mezzanine (14% Minnesota, 11% Wisconsin, 10% Florida, 10% Oklahoma, 9% Indiana, 9% California, 8% Texas, 8% Michigan,
and 21% all other states) |  |          |  |       |  |              |  |       |  |             |  |          
|Manufacturing                                                                                                                                           |  |          |  |       |  |              |  |       |  | 20          |  | 6         | % |  | 13.97           | % |         | $                  | 34,551  | 
|Administrative and support services                                                                                                                     |  |          |  |       |  |              |  |       |  | 5           |  | 2         |   |  | 17.12           |   |         |                    | 9,861   | 
|Wholesale trade                                                                                                                                         |  |          |  |       |  |              |  |       |  | 3           |  | 2         |   |  | 13.59           |   |         |                    | 9,752   | 
|Accommodation and food services                                                                                                                         |  |          |  |       |  |              |  |       |  | 4           |  | 1         |   |  | 11.00           |   |         |                    | 4,492   | 
|Professional, scientific, and technical services                                                                                                        |  |          |  |       |  |              |  |       |  | 1           |  | 1         |   |  | 19.00           |   |         |                    | 2,508   | 
|Health care and social assistance                                                                                                                       |  |          |  |       |  |              |  |       |  | 1           |  | *         |   |  | 7.00            |   |         |                    | 1,847   | 
|Information                                                                                                                                             |  |          |  |       |  |              |  |       |  | 2           |  | *         |   |  | 17.63           |   |         |                    | 1,588   | 
|Retail trade                                                                                                                                            |  |          |  |       |  |              |  |       |  | 1           |  | *         |   |  | 10.88           |   |         |                    | 876     | 
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Total                                                                                                                                                   |  |          |  |       |  |              |  |       |  | 37          |  | 12        | % |  | 14.23           |   |         | $                  | 65,475  | 
|Asset-based (69% New York, 23% New Jersey, and 8% all other states)                                                                                     |  |          |  |       |  |              |  |       |  |             |  |          
|Wholesale trade                                                                                                                                         |  |          |  |       |  |              |  |       |  | 10          |  | 1         | % |  | 4.79            | % |         | $                  | 5,419   | 
|Transportation and warehousing                                                                                                                          |  |          |  |       |  |              |  |       |  | 5           |  | 1         |   |  | 5.63            |   |         |                    | 2,065   | 
|Retail trade                                                                                                                                            |  |          |  |       |  |              |  |       |  | 6           |  | *         |   |  | 5.01            |   |         |                    | 1,888   | 
|Manufacturing                                                                                                                                           |  |          |  |       |  |              |  |       |  | 10          |  | *         |   |  | 6.30            |   |         |                    | 1,334   | 
|Construction                                                                                                                                            |  |          |  |       |  |              |  |       |  | 3           |  | *         |   |  | 5.36            |   |         |                    | 986     | 
|Finance and insurance                                                                                                                                   |  |          |  |       |  |              |  |       |  | 6           |  | *         |   |  | 6.27            |   |         |                    | 761     | 
|Administrative and support services                                                                                                                     |  |          |  |       |  |              |  |       |  | 3           |  | *         |   |  | 5.55            |   |         |                    | 462     | 
|Arts, entertainment, and recreation                                                                                                                     |  |          |  |       |  |              |  |       |  | 1           |  | *         |   |  | 5.75            |   |         |                    | 331     | 
|Health care and social assistance                                                                                                                       |  |          |  |       |  |              |  |       |  | 1           |  | *         |   |  | 5.50            |   |         |                    | 210     | 
|Real estate and rental and leasing                                                                                                                      |  |          |  |       |  |              |  |       |  | 1           |  | *         |   |  | 5.50            |   |         |                    | 96      | 
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Total                                                                                                                                                   |  |          |  |       |  |              |  |       |  | 46          |  | 2         | % |  | 5.29            |   |         | $                  | 13,552  | 
|Other secured commercial (91% New York, 7% New Jersey, and 2% Illinois)                                                                                 |  |          |  |       |  |              |  |       |  |             |  |          
|Accommodation and food services                                                                                                                         |  |          |  |       |  |              |  |       |  | 11          |  | 1         | % |  | 6.87            | % |         | $                  | 5,321   | 
|Retail trade                                                                                                                                            |  |          |  |       |  |              |  |       |  | 17          |  | 1         |   |  | 11.15           |   |         |                    | 4,374   | 
|Transportation and warehousing                                                                                                                          |  |          |  |       |  |              |  |       |  | 168         |  | 1         |   |  | 7.09            |   |         |                    | 3,323   | 
|Other services (except public administration)                                                                                                           |  |          |  |       |  |              |  |       |  | 10          |  | *         |   |  | 8.93            |   |         |                    | 1,427   | 
|Real estate and rental and leasing                                                                                                                      |  |          |  |       |  |              |  |       |  | 5           |  | *         |   |  | 7.20            |   |         |                    | 1,001   | 
|Arts, entertainment, and recreation                                                                                                                     |  |          |  |       |  |              |  |       |  | 2           |  | *         |   |  | 8.57            |   |         |                    | 424     | 
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Total                                                                                                                                                   |  |          |  |       |  |              |  |       |  | 213         |  | 3         | % |  | 8.34            |   |         | $                  | 15,870  | 
|Total                                                                                                                                                   |  |          |  |       |  |              |  |       |  | 296         |  | 17        | % |  | 11.97           | % |         | $                  | 94,897  | 
|Deferred loan acquisition costs                                                                                                                         |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   | (171    | )                 
|Unrealized depreciation on loans                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   | (5,115  | )                 
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 
|Commercial loans, net                                                                                                                                   |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 | $ | 89,611  |                   
|                                                                                                                                                        |  |          |  |       |  |              |  |       |  |             |  |           |   |  |                 |   |         |                    |         | 



|(1) | Represents the weighted average interest rate of the respective portfolio as of the date indicated.
|--- | ---------------------------------------------------------------------------------------------------



F-30



---

##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2008



|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|------------------------------------------------------------------------------------------ |  | -------------------------------------------- |  | ----- |  | ---------------------------- |  | ------ | - |  | ----------- |  | --------- | ------- |  | --------------- | - |  | ------------------ | ------- | -
|(Dollars in thousands)                                                                     |  | Industry                                     |  | State |  | SecurityType                 |  | % Held |   |  | # ofInvest. |  | % ofTotal |         |  | InterestRate(1) |   |  | InvestmentBalances |        
|Investment in Medallion Bank and other controlled subsidiaries                             |  |                                              |  |       |  |                              |  |        |   | 
|Medallion Bank** Salt Lake City, Utah                                                      |  | Commercial banking                           |  | Utah  |  | Common stock                 |  | 100    | % |  | 1           |  | 11        | %       |  | 9.37            | % |  | $                  | 64,003  |  
|SPAC 437 Madison Avenue New York, NY 10022                                                 |  | Special Purpose                              |  | NY    |  | Common Stock                 |  | 18     | % |  | 1           |  | 1         |         |  | 0.00            |   |  |                    | 6,567   |  
|Medallion Hamptons Holding, LLC 437 Madison Avenue New York, NY 10022                      |  | Real Estate                                  |  | NY    |  | Membership Interests         |  | 100    | % |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 1,917   |  
|Generation Outdoors, LLC 437 Madison Avenue New York, NY 10022                             |  | Advertising                                  |  | NY    |  | Common stock                 |  | 100    | % |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 530     |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Total                                                                                      |  |                                              |  |       |  |                              |  |        |   |  | 4           |  | 13        | %       |  | 8.22            | % |  | $                  | 73,017  |  
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries |  |                                              |  |       |  |                              |  |        |   |  |             |  |           | 1,733   | 
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Investment in Medallion Bank and other controlled subsidiaries, net                        |  |                                              |  |       |  |                              |  |        |   |  |             |  | $         | 74,750  | 
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Equity investments                                                                         |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Restaurant Technologies 940 Apollo Rd. Suite 110 Eagan, MN 55121                           |  | Restaurant Service Provider                  |  |       |  | Common Stock                 |  | *      |   |  | 1           |  | *         | %       |  | 0.00            | % |  | $                  | 990     |  
|PMC Commercial Trust ** 17950 Preston Road, Suite 600 Dallas, TX 75252                     |  | Real Estate Investment Trust                 |  |       |  | Common Stock                 |  | *      |   |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 901     |  
|Convergent Capital, Ltd 505 N. Highway 169 Minneapolis MN 35441                            |  | Commercial Finance                           |  |       |  | Limited Partnership Interest |  | 7      | % |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 640     |  
|On Top 2435 North Central Expressway Richardson, TX 75080                                  |  | Radio Station Broadcasting                   |  |       |  | Ownership Shares             |  | 12     | % |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 200     |  
|Micromedics, Inc. 1270 Eagan Industrial Road St. Paul, MN 55121-1385                       |  | Medical Device Manufacturer                  |  |       |  | Common Stock                 |  | *      |   |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 59      |  
|Star Concessions, Ltd. 8008 Cedar Springs Road, Dallas, TX 75235                           |  | Airport Food and Retail Terminal Building
LB |  |       |  | Limited Partnership Interest |  | 45     | % |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 40      |  
|Metlife                                                                                    |  | Insurance                                    |  |       |  | Common Stock                 |  | *      |   |  | 1           |  | *         |         |  | 0.00            |   |  |                    | 5       |  
|Appliance Recycling Centers of America, Inc.**                                             |  | Appliance Recycler                           |  |       |  | Common Stock                 |  | *      |   |  | 1           |  | *         |         |  | 0.00            |   |  |                    |        |  
|7400 Excelsior Boulevard Minneapolis, MN 55426-4516                                        |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Total                                                                                      |  |                                              |  |       |  |                              |  |        |   |  | 8           |  | *         | %       |  | 4.33            | % |  | $                  | 2,835   |  
|Unrealized appreciation on equities                                                        |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    | 437     |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Equity investments, net                                                                    |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  | $                  | 3,272   |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Investment securities                                                                      |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Total                                                                                      |  |                                              |  |       |  |                              |  |        |   |  |            |  |          | %       |  |                | % |  | $                  |        |  
|Unrealized appreciation on investment securities                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |        |  
|Investment securities, net                                                                 |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  | $                  |        |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Total investments at cost                                                                  |  |                                              |  |       |  |                              |  |        |   |  | 1,905       |  | 100       | %       |  | 7.56            | % |  | $                  | 573,290 |  
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Deferred loan acquisition costs                                                            |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    | 252     |  
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries |  |                                              |  |       |  |                              |  |        |   |  |             |  |           | 1,733   | 
|Unrealized appreciation on equities                                                        |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    | 437     |  
|Unrealized depreciation on loans                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    | (5,115  | )
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  
|Net Investments ($458,102 pledged as collateral under borrowing arrangements)              |  |                                              |  |       |  |                              |  |        |   |  |             |  | $         | 570,597 | 
|                                                                                           |  |                                              |  |       |  |                              |  |        |   |  |             |  |           |         |  |                 |   |  |                    |         |  



|* | Less than 1.0%
|- | --------------



|** | Not an eligible portfolio company as such term is defined in Section 2(a)(46) of the 1940 Act.
|-- | ----------------------------------------------------------------------------------------------



|(1) | Represents the weighted average interest rate of the respective portfolio as of the date indicated.
|--- | ---------------------------------------------------------------------------------------------------



F-31



---

##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2007



|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|----------------------------------------------------------------------------------------------------------------------- |  | -------- |  | ----- |  | ------------ |  | ----- |  | ----------- | - | --------- | ----- | - | --------------- | - | ------- | ------------------ | ------- | 
|(Dollars in thousands)                                                                                                  |  | Industry |  | State |  | SecurityType |  | %Held |  | # ofInvest. |   | % ofTotal |       |   | InterestRate(1) |   |         | InvestmentBalances |        
|Medallion loans                                                                                                         |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|New York                                                                                                                |  |          |  |       |  |              |  |       |  | 1,166       |   | 61        | %     |   | 6.91            | % |         | $                  | 399,955 | 
|Chicago                                                                                                                 |  |          |  |       |  |              |  |       |  | 286         |   | 5         |       |   | 7.43            |   |         |                    | 33,008  | 
|Boston                                                                                                                  |  |          |  |       |  |              |  |       |  | 161         |   | 5         |       |   | 8.44            |   |         |                    | 32,446  | 
|Newark                                                                                                                  |  |          |  |       |  |              |  |       |  | 159         |   | 3         |       |   | 8.40            |   |         |                    | 22,058  | 
|Cambridge                                                                                                               |  |          |  |       |  |              |  |       |  | 25          |   | 1         |       |   | 8.41            |   |         |                    | 5,174   | 
|Other                                                                                                                   |  |          |  |       |  |              |  |       |  | 29          |   | 1         |       |   | 7.58            |   |         |                    | 5,481   | 
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Total                                                                                                                   |  |          |  |       |  |              |  |       |  | 1,826       |   | 76        | %     |   | 7.13            | % |         |                    | 498,122 | 
|Deferred loan acquisition costs                                                                                         |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   | 798     |                   
|Unrealized depreciation on loans                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   | (37     | )                 
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Medallion loans, net                                                                                                    |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 | $ | 498,883 |                   
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Commercial loans                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Secured mezzanine (22% Minnesota, 15% Wisconsin, 11% Indiana, 10% Texas, 7% Iowa, 7% Florida, and 28% all other states) |  |          |  |       |  |              |  |       |  |             |   |          
|Manufacturing                                                                                                           |  |          |  |       |  |              |  |       |  | 21          |   | 5         | %     |   | 14.32           | % |         | $                  | 32,258  | 
|Accommodation and food services                                                                                         |  |          |  |       |  |              |  |       |  | 4           |   | 1         |       |   | 11.40           |   |         |                    | 6,442   | 
|Administrative and support services                                                                                     |  |          |  |       |  |              |  |       |  | 3           |   | 1         |       |   | 17.01           |   |         |                    | 6,265   | 
|Wholesale trade                                                                                                         |  |          |  |       |  |              |  |       |  | 1           |   | 1         |       |   | 13.00           |   |         |                    | 4,000   | 
|Transportation and warehousing                                                                                          |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 14.00           |   |         |                    | 2,850   | 
|Professional, scientific, and technical services                                                                        |  |          |  |       |  |              |  |       |  | 2           |   | *         |       |   | 18.81           |   |         |                    | 2,619   | 
|Health care and social assistance                                                                                       |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 7.00            |   |         |                    | 1,906   | 
|Information                                                                                                             |  |          |  |       |  |              |  |       |  | 3           |   | *         |       |   | 17.67           |   |         |                    | 1,808   | 
|Retail trade                                                                                                            |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 10.88           |   |         |                    | 1,004   | 
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Total                                                                                                                   |  |          |  |       |  |              |  |       |  | 37          |   | 9         | %     |   | 14.19           |   |         | $                  | 59,152  | 
|Asset-based (77% New York, 21% New Jersey, and 2% all other states)                                                     |  |          |  |       |  |              |  |       |  |             |   |          
|Wholesale trade                                                                                                         |  |          |  |       |  |              |  |       |  | 10          |   | 1         | %     |   | 8.45            | % |         | $                  | 7,505   | 
|Retail trade                                                                                                            |  |          |  |       |  |              |  |       |  | 7           |   | 1         |       |   | 8.87            |   |         |                    | 3,333   | 
|Administrative and support services                                                                                     |  |          |  |       |  |              |  |       |  | 3           |   | *         |       |   | 8.65            |   |         |                    | 2,879   | 
|Transportation and warehousing                                                                                          |  |          |  |       |  |              |  |       |  | 5           |   | *         |       |   | 9.51            |   |         |                    | 2,425   | 
|Construction                                                                                                            |  |          |  |       |  |              |  |       |  | 2           |   | *         |       |   | 9.25            |   |         |                    | 1,159   | 
|Manufacturing                                                                                                           |  |          |  |       |  |              |  |       |  | 10          |   | *         |       |   | 10.14           |   |         |                    | 1,111   | 
|Arts, entertainment, and recreation                                                                                     |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 9.75            |   |         |                    | 569     | 
|Finance and insurance                                                                                                   |  |          |  |       |  |              |  |       |  | 5           |   | *         |       |   | 10.10           |   |         |                    | 506     | 
|Professional, scientific, and technical services                                                                        |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 9.25            |   |         |                    | 264     | 
|Health care and social assistance                                                                                       |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 9.50            |   |         |                    | 89      | 
|Real estate and rental and leasing                                                                                      |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 9.50            |   |         |                    | 30      | 
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Total                                                                                                                   |  |          |  |       |  |              |  |       |  | 46          |   | 3         | %     |   | 8.91            |   |         | $                  | 19,870  | 
|Other secured commercial (91% New York, 7% New Jersey, and 2% Illinois)                                                 |  |          |  |       |  |              |  |       |  |             |   |          
|Transportation and warehousing                                                                                          |  |          |  |       |  |              |  |       |  | 132         |   | 1         | %     |   | 7.25            | % |         | $                  | 5,152   | 
|Accommodation and food services                                                                                         |  |          |  |       |  |              |  |       |  | 10          |   | 1         |       |   | 9.05            |   |         |                    | 4,763   | 
|Retail trade                                                                                                            |  |          |  |       |  |              |  |       |  | 13          |   | 1         |       |   | 11.61           |   |         |                    | 3,843   | 
|Other services (except public administration)                                                                           |  |          |  |       |  |              |  |       |  | 18          |   | 1         |       |   | 9.56            |   |         |                    | 3,789   | 
|Real estate and rental and leasing                                                                                      |  |          |  |       |  |              |  |       |  | 6           |   | *         |       |   | 7.39            |   |         |                    | 1,144   | 
|Arts, entertainment, and recreation                                                                                     |  |          |  |       |  |              |  |       |  | 2           |   | *         |       |   | 8.59            |   |         |                    | 413     | 
|Construction                                                                                                            |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 7.25            |   |         |                    | 148     | 
|Manufacturing                                                                                                           |  |          |  |       |  |              |  |       |  | 1           |   | *         |       |   | 8.00            |   |         |                    | 4       | 
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Total                                                                                                                   |  |          |  |       |  |              |  |       |  | 183         |   | 3         | %     |   | 9.05            |   |         | $                  | 19,256  | 
|Total                                                                                                                   |  |          |  |       |  |              |  | 266   |  | 15          | % |           | 12.12 | % |                 | $ | 98,278  |                   
|Deferred loan acquisition costs                                                                                         |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   | (64     | )                 
|Unrealized depreciation on loans                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   | (6,432  | )                 
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 
|Commercial loans, net                                                                                                   |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 | $ | 91,782  |                   
|                                                                                                                        |  |          |  |       |  |              |  |       |  |             |   |           |       |   |                 |   |         |                    |         | 



|(1) | Represents the weighted average interest rate of the respective portfolio as of the date indicated.
|--- | ---------------------------------------------------------------------------------------------------



F-32



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##### Table of Contents

Medallion Financial Corp.

Consolidated Schedule of Investments

December 31, 2007



|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|------------------------------------------------------------------------------------------ |  | -------------------------- |  | ------------------------- |  | -------------------------- |  | ----- | - |  | ----------- | ------ | --------- | - |  | --------------- | - |  | ------------------ | ------- | -
|(Dollars in thousands)                                                                     |  | Industry                   |  | State                     |  | SecurityType               |  | %Held |   |  | # ofInvest. |        | % ofTotal |   |  | InterestRate(1) |   |  | InvestmentBalances |        
|Investment in Medallion Bank and other controlled subsidiaries                             |  |                            |  |                           |  |                            |  |       |   |  |             |        |          
|Medallion Bank** Salt Lake City, Utah                                                      |  | Commercialbanking          |  | Utah                      |  | Commonstock                |  | 100   | % |  | 1           |        | 8         | % |  | 14.24           | % |  | $                  | 53,834  |  
|Medallion Hamptons Holding, LLC 437 Madison Avenue New York, NY 10022                      |  | Real Estate                |  | NY                        |  | MembershipInterests        |  | 100   | % |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 1,730   |  
|Generation Outdoors, LLC 437 Madison Avenue New York, NY 10022                             |  | Advertising                |  | NY                        |  | Commonstock                |  | 100   | % |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 17      |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Total                                                                                      |  |                            |  |                           |  |                            |  |       |   |  | 3           |        | 9         | % |  | 13.79           | % |  | $                  | 55,581  |  
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries |  |                            |  |                           |  |                            |  |       |   |  |             | 1,920  |          
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Investment in Medallion Bank and other controlled subsidiaries, net                        |  |                            |  |                           |  |                            |  |       |   |  | $           | 57,501 |          
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Equity investments                                                                         |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|PMC Commercial Trust ** 17950 Preston Road, Suite 600 Dallas, TX 75252                     |  | Real EstateInvestmentTrust |  |                           |  | CommonStock                |  | *     |   |  | 1           |        | *         | % |  | 11.2            | % |  | $                  | 901     |  
|Restaurant Technologies 940 Apollo Rd. Suite 110 Eagan, MN 55121                           |  |                            |  | RestaurantServiceProvider |  | CommonStock                |  | *     |   |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 620     |  
|Clear Source 2281 Vermont Rte. 66 Randolph, VT 05060                                       |  | BottledWaterManufacturer   |  |                           |  | Warrants                   |  | *     |   |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 278     |  
|Convergent Capital, Ltd 505 N. Highway 169 Minneapolis MN 35441                            |  | CommercialFinance          |  |                           |  | LimitedPartnershipInterest |  | 7     | % |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 240     |  
|Micromedics, Inc. 1270 Eagan Industrial Road St. Paul, MN 55121-1385                       |  | MedicalDeviceManufacturer  |  |                           |  | CommonStock                |  | *     |   |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 59      |  
|Star Concessions, Ltd. 8008 Cedar Springs Road, Terminal Building LB Dallas, TX 75235      |  | Airport Foodand Retail     |  |                           |  | LimitedPartnershipInterest |  | 45    | % |  | 1           |        | *         |   |  | 0.00            |   |  |                    | 40      |  
|Appliance Recycling Centers of America, Inc.**                                             |  | ApplianceRecycler          |  |                           |  | CommonStock                |  | *     |   |  | 1           |        | *         |   |  | 0.00            |   |  |                    |        |  
|7400 Excelsior Boulevard Minneapolis, MN 55426-4516                                        |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Total                                                                                      |  |                            |  |                           |  |                            |  |       |   |  | 7           |        | *         | % |  | 4.70            | % |  | $                  | 2,138   |  
|Unrealized appreciation on equities                                                        |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    | 2,742   |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Equity investments, net                                                                    |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  | $                  | 4,880   |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Investment securities                                                                      |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Total                                                                                      |  |                            |  |                           |  |                            |  |       |   |  |            |        |          | % |  |                | % |  | $                  |        |  
|Unrealized appreciation on investment securities                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |        |  
|Investment securities, net                                                                 |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  | $                  |        |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Total investments at cost                                                                  |  |                            |  |                           |  |                            |  |       |   |  | 2,102       |        | 100       | % |  | 8.45            | % |  | $                  | 654,119 |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Deferred loan acquisition costs                                                            |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    | 734     |  
|Unrealized appreciation on investments in Medallion Bank and other controlled subsidiaries |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    | 1,920   |  
|Unrealized appreciation on equities                                                        |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    | 2,742   |  
|Unrealized depreciation on loans                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    | (6,469  | )
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  
|Net Investments ($458,102 pledged as collateral under borrowing arrangements)              |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  | $                  | 653,046 |  
|                                                                                           |  |                            |  |                           |  |                            |  |       |   |  |             |        |           |   |  |                 |   |  |                    |         |  



|* | Less than 1.0%
|- | --------------



|** | Not an eligible portfolio company as such term is defined in Section 2(a)(46) of the 1940 Act.
|-- | ----------------------------------------------------------------------------------------------



|(2) | Represents the weighted average interest rate of the respective portfolio as of the date indicated.
|--- | ---------------------------------------------------------------------------------------------------



F-33



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##### Table of Contents

Medallion Bank

(A wholly owned subsidiary of Medallion Financial Corp.)

Financial Statements for the years ended December 31, 2008, 2007, and,
2006



F-34



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##### Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholder of Medallion Bank

We have audited
the accompanying balance sheets of Medallion Bank (the Bank) (a wholly owned subsidiary of Medallion Financial Corp.) as of December 31, 2008 and 2007, and the related statements of operations and other comprehensive income (loss),
changes in shareholders equity, and cash flows for each of the three years in the three-year period ended December 31, 2008. These financial statements are the responsibility of the Banks management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Bank as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the three-year period ended December 31, 2008, in
conformity with US generally accepted accounting principles.

Weiser LLP

New York, New York

March 13, 2009



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##### Table of Contents

Medallion Bank

Statements of Operations and Other Comprehensive Income (Loss)

For the years ended December 31,



|                                                    |  |      |            |   |      |   |            |  |   |            |  
|--------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- |  | - | ---------- | -
|                                                    |  | 2008 |            |   | 2007 |   | 2006       | 
|Interest income                                     |  |      |            |   |      |   |            |  |   |            |  
|Investments                                         |  | $    | 1,365,464  |   |      | $ | 1,654,465  |  | $ | 1,589,039  |  
|Loan interest including fees                        |  |      | 40,007,949 |   |      |   | 34,909,582 |  |   | 28,386,375 |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Total interest income                               |  |      | 41,373,413 |   |      |   | 36,564,047 |  |   | 29,975,414 |  
|Interest expense                                    |  |      | 14,933,771 |   |      |   | 13,803,604 |  |   | 10,453,732 |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Net interest income                                 |  |      | 26,439,642 |   |      |   | 22,760,443 |  |   | 19,521,682 |  
|Provision for loan losses                           |  |      | 11,300,146 |   |      |   | 5,177,823  |  |   | 3,197,752  |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Net interest income after provision for loan losses |  |      | 15,139,496 |   |      |   | 17,582,620 |  |   | 16,323,930 |  
|Non-interest income                                 |  |      | 468,566    |   |      |   | 336,719    |  |   | 490,128    |  
|Gain/(loss) on sale of assets                       |  |      | (88,794    | ) |      |   | 55,423     |  |   | 26,378     |  
|Non-interest expense                                |  |      |            |   |      |   |            |  |   |            |  
|Loan servicing                                      |  |      | 4,190,889  |   |      |   | 3,520,906  |  |   | 2,951,525  |  
|Salaries and benefits                               |  |      | 2,276,077  |   |      |   | 2,174,839  |  |   | 1,953,858  |  
|Regulatory fees                                     |  |      | 408,248    |   |      |   | 137,059    |  |   | 45,287     |  
|Professional fees                                   |  |      | 346,400    |   |      |   | 357,477    |  |   | 497,368    |  
|Occupancy and equipment                             |  |      | 201,214    |   |      |   | 177,367    |  |   | 154,392    |  
|Credit reports                                      |  |      | 199,321    |   |      |   | 160,909    |  |   | 124,818    |  
|Other                                               |  |      | 932,170    |   |      |   | 661,324    |  |   | 561,761    |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Total non-interest expense                          |  |      | 8,554,319  |   |      |   | 7,189,881  |  |   | 6,289,009  |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Income before income taxes                          |  |      | 6,964,949  |   |      |   | 10,784,881 |  |   | 10,551,427 |  
|Provision for income taxes                          |  |      | 2,775,621  |   |      |   | 4,058,745  |  |   | 4,387,959  |  
|Net income                                          |  |      | 4,189,328  |   |      |   | 6,726,136  |  |   | 6,163,468  |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Other comprehensive income/(loss), net of tax       |  |      | (64,096    | ) |      |   | 269,518    |  |   | (2,313     | )
|                                                    |  |      |            |   |      |   |            |  |   |            |  
|Total comprehensive income                          |  | $    | 4,125,232  |   |      | $ | 6,995,654  |  | $ | 6,161,155  |  
|                                                    |  |      |            |   |      |   |            |  |   |            |  

The accompanying notes are an integral part of these financial statements.



F-36



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##### Table of Contents

Medallion Bank

Balance Sheets

December 31,



|                                                                                               |  |      |             |   |      |   |             |  
|---------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                               |  | 2008 |             |   | 2007 |  
|Assets                                                                                         |  |      |             |   |      |   |             |  
|Cash and cash equivalents, substantially all of which are federal funds sold                   |  | $    | 9,400,755   |   |      | $ | 17,024,801  |  
|Investment securities available-for-sale                                                       |  |      | 20,088,254  |   |      |   | 21,837,833  |  
|Loans, net of deferred loan acquisition costs                                                  |  |      | 406,910,964 |   |      |   | 322,419,804 |  
|Allowance for loan losses                                                                      |  |      | (10,807,817 | ) |      |   | (7,311,430  | )
|                                                                                               |  |      |             |   |      |   |             |  
|Loans, net                                                                                     |  |      | 396,103,147 |   |      |   | 315,108,374 |  
|Due from affiliates                                                                            |  |      |            |   |      |   | 1,120,371   |  
|Repossessed inventory                                                                          |  |      | 2,425,106   |   |      |   | 978,057     |  
|Fixed assets, net                                                                              |  |      | 206,393     |   |      |   | 198,304     |  
|Deferred tax asset                                                                             |  |      | 1,649,512   |   |      |   | 931,165     |  
|Other assets                                                                                   |  |      | 5,520,841   |   |      |   | 4,635,517   |  
|                                                                                               |  |      |             |   |      |   |             |  
|Total assets                                                                                   |  | $    | 435,394,008 |   |      | $ | 361,834,422 |  
|                                                                                               |  |      |             |   |      |   |             |  
|Liabilities and shareholders equity                                                           |  |      |             |   |      |   |             |  
|Liabilities                                                                                    |  |      |             |   |      |   |             |  
|Time deposits, including accrued interest payable of $3,655,540 in 2008 and $3,717,322 in 2007 |  | $    | 370,063,540 |   |      | $ | 302,800,323 |  
|Subordinated debt and related party deposit                                                    |  |      | 205,553     |   |      |   | 105,553     |  
|Other liabilities                                                                              |  |      | 1,120,846   |   |      |   | 3,136,500   |  
|Due to affiliates                                                                              |  |      | 129,517     |   |      |   |            |  
|Taxes payable                                                                                  |  |      | 106,199     |   |      |   | 898,925     |  
|                                                                                               |  |      |             |   |      |   |             |  
|Total liabilities                                                                              |  |      | 371,625,655 |   |      |   | 306,941,301 |  
|                                                                                               |  |      |             |   |      |   |             |  
|Commitments and contingencies                                                                  |  |      |            |   |      |   |            |  
|Shareholders equity                                                                           |  |      |             |   |      |   |             |  
|Common stock, $1 par value, 1,000,000 shares authorized, 1,000,000 issued and outstanding      |  |      | 1,000,000   |   |      |   | 1,000,000   |  
|Additional paid in capital                                                                     |  |      | 49,750,000  |   |      |   | 39,000,000  |  
|Accumulated other comprehensive income (loss), net of tax                                      |  |      | (39,988     | ) |      |   | 24,108      |  
|Retained earnings                                                                              |  |      | 13,058,341  |   |      |   | 14,869,013  |  
|                                                                                               |  |      |             |   |      |   |             |  
|Total shareholders equity                                                                     |  |      | 63,768,353  |   |      |   | 54,893,121  |  
|                                                                                               |  |      |             |   |      |   |             |  
|Total liabilities and shareholders equity                                                     |  | $    | 435,394,008 |   |      | $ | 361,834,422 |  
|                                                                                               |  |      |             |   |      |   |             |  

The accompanying notes are an integral part of these financial statements.



F-37



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##### Table of Contents

Medallion Bank

Statements of Changes in Shareholders Equity

For the years ended December 31, 2008, 2007, and 2006



|                                           |  |             |           |                          |   |                                            |  |           |                  |  |   |                          |   |  |   |            |  
|------------------------------------------ |  | ----------- | --------- | ------------------------ | - | ------------------------------------------ |  | --------- | ---------------- |  | - | ------------------------ | - |  | - | ---------- | -
|                                           |  | CommonStock |           | AdditionalPaid inCapital |   | AccumulatedOtherComprehensiveIncome (Loss) |  |           | RetainedEarnings |  |   | TotalShareholdersEquity |  
|Balance at December 31, 2005               |  | $           | 1,000,000 |                          | $ | 30,650,000                                 |  | ($243,097 | )                |  | $ | 7,729,409                |   |  | $ | 39,136,312 |  
|Capital Contributions                      |  |             |          |                          |   | 1,550,000                                  |  |          |                  |  |   |                         |   |  |   | 1,550,000  |  
|Net income                                 |  |             |          |                          |   |                                           |  |          |                  |  |   | 6,163,468                |   |  |   | 6,163,468  |  
|Unrealized losses on investment securities |  |             |          |                          |   |                                           |  | (2,313    | )                |  |   |                         |   |  |   | (2,313     | )
|                                           |  |             |           |                          |   |                                            |  |           |                  |  |   |                          |   |  |   |            |  
|Balance at December 31, 2006               |  |             | 1,000,000 |                          |   | 32,200,000                                 |  | (245,410  | )                |  |   | 13,892,877               |   |  |   | 46,847,467 |  
|Capital Contributions                      |  |             |          |                          |   | 6,800,000                                  |  |          |                  |  |   |                         |   |  |   | 6,800,000  |  
|Net income                                 |  |             |          |                          |   |                                           |  |          |                  |  |   | 6,726,136                |   |  |   | 6,726,136  |  
|Dividends paid to parent                   |  |             |           |                          |   |                                            |  |           |                  |  |   | (5,750,000               | ) |  |   | (5,750,000 | )
|Unrealized gains on investment securities  |  |             |          |                          |   |                                           |  | 269,518   |                  |  |   |                         |   |  |   | 269,518    |  
|                                           |  |             |           |                          |   |                                            |  |           |                  |  |   |                          |   |  |   |            |  
|Balance at December 31, 2007               |  |             | 1,000,000 |                          |   | 39,000,000                                 |  | 24,108    |                  |  |   | 14,869,013               |   |  |   | 54,893,121 |  
|Capital Contributions                      |  |             |          |                          |   | 10,750,000                                 |  |          |                  |  |   |                         |   |  |   | 10,750,000 |  
|Net income                                 |  |             |          |                          |   |                                           |  |          |                  |  |   | 4,189,328                |   |  |   | 4,189,328  |  
|Dividends paid to parent                   |  |             |          |                          |   |                                           |  |          |                  |  |   | (6,000,000               | ) |  |   | (6,000,000 | )
|Unrealized losses on investment securities |  |             |          |                          |   |                                           |  | (64,096   | )                |  |   |                         |   |  |   | (64,096    | )
|                                           |  |             |           |                          |   |                                            |  |           |                  |  |   |                          |   |  |   |            |  
|Balance at December 31, 2008               |  | $           | 1,000,000 |                          | $ | 49,750,000                                 |  | ($39,988  | )                |  | $ | 13,058,341               |   |  | $ | 63,768,353 |  
|                                           |  |             |           |                          |   |                                            |  |           |                  |  |   |                          |   |  |   |            |  

The accompanying notes are an integral part of these financial statements.



F-38



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##### Table of Contents

Medallion Bank

Statements of Cash Flows

For the years ended December 31,



|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|--------------------------------------------------------------------------------------- |  | ---- | ------------ | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                                        |  | 2008 |              |   | 2007 |   |              | 2006 | 
|Cash flows from operating activities                                                    |  |      |              |   |      |   |              |      |  |   |              |  
|Net income from operations                                                              |  | $    | 4,189,328    |   |      | $ | 6,726,136    |      |  | $ | 6,163,468    |  
|Adjustments to reconcile net income to net cash flows provided by operating activities: |  |      |              |   |      |   |              |      |  |   |              |  
|Depreciation and amortization                                                           |  |      | 83,535       |   |      |   | 71,136       |      |  |   | 47,208       |  
|Provision for loan losses                                                               |  |      | 11,300,146   |   |      |   | 5,177,823    |      |  |   | 3,197,752    |  
|Amortization of origination costs                                                       |  |      | 2,181,515    |   |      |   | 1,155,607    |      |  |   | 851,052      |  
|Amortization of premium on investments                                                  |  |      | 4,195        |   |      |   | 139,868      |      |  |   | 276,737      |  
|Deferred tax asset                                                                      |  |      | (679,890     | ) |      |   | (1,449,586   | )    |  |   | 730,159      |  
|Changes in operating assets and liabilities:                                            |  |      |              |   |      |   |              |      |  |   |              |  
|Interest receivable                                                                     |  |      | (488,116     | ) |      |   | (447,701     | )    |  |   | (733,748     | )
|Repossessed inventory                                                                   |  |      | (1,447,049   | ) |      |   | (205,212     | )    |  |   | (291,947     | )
|Other assets                                                                            |  |      | (397,208     | ) |      |   | 44,855       |      |  |   | (185,224     | )
|Interest payable                                                                        |  |      | (61,783      | ) |      |   | 489,783      |      |  |   | 1,137,326    |  
|Other liabilities                                                                       |  |      | (2,015,653   | ) |      |   | 2,651,161    |      |  |   | 144,652      |  
|Taxes payable                                                                           |  |      | (792,726     | ) |      |   | 918,333      |      |  |   | (125,084     | )
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net cash provided by operating activities                                               |  |      | 11,876,294   |   |      |   | 15,272,203   |      |  |   | 11,212,351   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash flows from investing activities                                                    |  |      |              |   |      |   |              |      |  |   |              |  
|Increase in loans, net                                                                  |  |      | (94,476,435  | ) |      |   | (53,602,012  | )    |  |   | (55,180,659  | )
|Purchase of investments                                                                 |  |      | (7,026,468   | ) |      |   | (6,166,975   | )    |  |   | (8,305,414   | )
|Proceeds from maturity of investments                                                   |  |      | 8,669,300    |   |      |   | 6,313,080    |      |  |   | 4,279,379    |  
|Purchase of premises and equipment                                                      |  |      | (91,624      | ) |      |   | (101,900     | )    |  |   | (71,100      | )
|Loss on sale of premises and equipment                                                  |  |      |             |   |      |   | 11,551       |      |  |   |             |  
|Proceeds from disposal of premises and equipment                                        |  |      |             |   |      |   | 5,000        |      |  |   |             |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net cash used in investing activities                                                   |  |      | (92,925,227  | ) |      |   | (53,541,256  | )    |  |   | (59,277,794  | )
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash flows from financing activities                                                    |  |      |              |   |      |   |              |      |  |   |              |  
|Issuance of time deposits                                                               |  |      | 446,205,000  |   |      |   | 216,633,000  |      |  |   | 297,782,000  |  
|Payments made at maturity of time deposits                                              |  |      | (378,880,000 | ) |      |   | (175,806,000 | )    |  |   | (256,543,000 | )
|Federal funds purchased                                                                 |  |      | 10,500,000   |   |      |   | 16,245,000   |      |  |   |             |  
|Payments made at maturity of federal funds purchased                                    |  |      | (10,500,000  | ) |      |   | (16,245,000  | )    |  |   |             |  
|Change in due to parent/affiliates                                                      |  |      | 1,349,887    |   |      |   | (1,282,065   | )    |  |   | (51,756      | )
|Proceeds from capital contributions                                                     |  |      | 10,750,000   |   |      |   | 6,800,000    |      |  |   | 1,550,000    |  
|Dividends paid                                                                          |  |      | (6,000,000   | ) |      |   | (5,750,000   | )    |  |   |             |  
|Repayment of subordinated debt                                                          |  |      |             |   |      |   |             |      |  |   | (200,000     | )
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net cash provided by financing activities                                               |  |      | 73,424,887   |   |      |   | 40,594,935   |      |  |   | 42,537,244   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Net change in cash and cash equivalents                                                 |  |      | (7,624,046   | ) |      |   | 2,325,882    |      |  |   | (5,528,199   | )
|Cash and cash equivalents, beginning of the year                                        |  |      | 17,024,801   |   |      |   | 14,698,919   |      |  |   | 20,227,118   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash and cash equivalents, end of the year                                              |  | $    | 9,400,755    |   |      | $ | 17,024,801   |      |  | $ | 14,698,919   |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                        |  |      |              |   |      |   |              |      |  |   |              |  
|Cash paid for interest                                                                  |  | $    | 14,039,515   |   |      | $ | 12,518,703   |      |  | $ | 8,617,151    |  
|Cash paid for income taxes                                                              |  |      | 3,400,625    |   |      |   | 4,590,000    |      |  |   | 3,782,883    |  
|Loans transferred to repossessed inventory                                              |  |      | 9,535,278    |   |      |   | 5,391,666    |      |  |   | 3,664,350    |  
|                                                                                        |  |      |              |   |      |   |              |      |  |   |              |  

The accompanying notes are an integral part of these financial statements.



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Medallion Bank

Notes to Financial Statements

For the year ended December 31, 2008



|1. | Organization and summary of significant accounting policies
|-- | -----------------------------------------------------------

Description of business Medallion Bank (the Bank) is a limited service industrial bank headquartered in Salt Lake City, Utah. The Bank was formed in May 2002 for the purpose of obtaining an industrial bank (IB) charter
pursuant to the laws of the State of Utah. The Bank is a wholly owned subsidiary of Medallion Financial Corp. (Medallion). The Bank originates asset-based commercial loans and commercial loans to finance the purchase of taxi medallions (licenses),
both of which are marketed and serviced by the Banks affiliates who have extensive prior experience in these asset groups. The Bank originates consumer loans on a national basis that are secured by marine, recreational vehicle, and trailer
products to customers with prior credit blemishes. The Bank also originates unsecured consumer loans to finance hearing aids. Time certificates of deposits are originated nationally through a variety of brokered deposit relationships.

Basis of presentation The Banks financial statements are presented in accordance with accounting principles generally accepted
in the US and prevailing industry practices, which require management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Estimates, by their nature, are based upon
judgment and available information. Actual results could differ materially from those estimates.

Cash and cash equivalents The Bank considers all highly liquid instruments with an original purchased maturity of three months or less to be cash equivalents. Cash balances are generally held in accounts at large national or regional banking organizations in amounts
that frequently exceed the federally insured limits. A non-interest bearing compensating balance of $100,000 is maintained at Zions Bank.

Investment securities  Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, requires that all applicable investments be classified as
trading securities, available-for-sale securities, or held-to-maturity securities. The Bank had $20,088,000 and $21,838,000 of available-for-sale securities at fair value as of December 31, 2008 and 2007. The statement further requires that
held-to-maturity securities be reported at amortized cost and available-for-sale securities be reported at fair value, with unrealized gains and losses excluded from earnings, at the date of the financial statements and reported in accumulated other
comprehensive income (loss) as a separate component of shareholders equity, net of the effect of income taxes, until they are sold. The Bank had $64,000 of pretax net unrealized losses and $39,000 of pretax net unrealized gains on
available-for-sale securities as of December 31, 2008 and 2007. At the time of sale, any gains or losses, calculated by the specific identification method, will be recognized as a component of operating results and any amounts previously
included in shareholders equity, which were recorded net of the income tax effect, will be reversed.

Loans
Loans are reported at the principal amount outstanding, net of deferred loan acquisition costs, which primarily includes deferred fees paid to loan originators, and which is amortized to interest income over the life of the loan.
Interest income is recognized on an accrual basis. Loans are usually charged-off when they are 120 days contractually past due unless the loan is both well secured and in the process of collection or bankruptcy, or when, in the opinion of
management, full collection of principal and interest is unlikely. All interest accrued but not collected for loans that are charged off is reversed against interest income. For the recreational consumer loan portfolio, the process to repossess the
collateral is started at 60 days past due. If the collateral is not located and the account reaches 120 days delinquent, the account is charged off. If the collateral is repossessed, a loss is recorded to write the loan down to its fair value less
selling costs, and the collateral is sent to auction. When the collateral is sold, the net auction proceeds are applied to the account, and any remaining balance is written off, and any excess proceeds are recorded as a realized gain. Proceeds
collected on charged off accounts are recorded as a recovery. Total loans 90 days or more past due were $4,345,000, $1,036,000, and $631,000 at December 31, 2008, 2007, and 2006.

A loan is considered to be impaired when, based on current information and events, it is likely the Bank will be unable to collect all amounts due
according to the contractual terms of the original loan agreement. Management considers loans that are in bankruptcy status, but have not been charged-off, to be impaired. These loans are charged-down to fair value and placed on nonaccrual status.
Fair value is determined based upon comparable market prices for substantially similar collateral plus managements estimate of disposal costs. All interest accrued but not collected for loans that are placed on nonaccrual is reversed against
interest income. The interest on these loans is accounted for on the cash basis until qualifying for return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and
future payments are reasonably assured. At December 31, 2008, $2,442,000 or 1% of consumer loans and $1,832,000 or 2% of commercial loans were on nonaccrual, compared to $623,000, or less than 1% of consumer loans on nonaccrual at
December 31, 2007, of which the Bank had established allowance for loan losses of $117,000, $222,000, and $27,000 respectively. The amount of interest income on nonaccrual loans that would have been recognized if the loans had been paying in
accordance with their original terms was $141,000 in 2008, $27,000 in 2007, and $0 in 2006. None of the Banks medallion loans were on nonaccrual as of December 31, 2008 and 2007.



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Allowance for loan losses In analyzing the adequacy of the allowance for loan losses,
the Bank uses historical delinquency and actual loss rates acquired from Medallion and the unrelated financial institution from which the consumer portfolio was purchased. The allowance for loan losses is evaluated on a regular basis by management
and is based upon managements periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers ability to repay, estimated
value of any underlying collateral, prevailing economic conditions, and excess concentration risks. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes
available. Credit losses are deducted from the allowance and subsequent recoveries are added.

Fixed assets Fixed
assets are stated at cost less accumulated depreciation and amortization. Maintenance and repairs are charged to expense while significant improvements are capitalized. Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the related assets. Capitalized leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the remaining lease term.

Income taxes The Bank uses the asset and liability method in providing income taxes on all transactions that have been recognized in
the financial statements. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their existing tax
bases. The Bank files its tax returns on a separate company basis.

Other comprehensive gain/(loss) The Bank had
($64,000), $270,000, and ($2,000) of net unrealized gains (losses) due to the mark-to-market of available-for-sale securities for the years ended December 31, 2008, 2007, and 2006. The Bank had no other components of comprehensive loss.

Restrictions on dividends, loans, and advances Banking regulations place certain restrictions on dividends paid and
loans or advances made by the Bank to Medallion. The total amount of dividends that may be paid at any date is generally limited to the retained earnings of the Bank. However, dividends paid by the Bank would be prohibited if the effect thereof
would cause the Banks capital to be reduced below applicable minimum standards. The Bank was restricted from paying dividends in the first three years of operations.

Fair value of financial instruments The fair value of a financial instrument is the current amount that would be exchanged between
willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. The Financial Accounting Standards Board (FASB) issued SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, which excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

Fair value of assets and liabilities The Bank adopted Statement of Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157) in the 2008 first quarter, which defines fair value, establishes a
framework for measuring fair value, and expands disclosures about fair value measurements. While SFAS No. 157 does not require any new fair value measurements, it applies under other pronouncements that require or permit fair value
measurements, such as SFAS No. 107, 133, 150, 155, and 156. SFAS No 157 clarifies the definition of fair value as an exit price (i.e. a price that would be received to sell, as opposed to acquire, an asset or transfer a liability), and
emphasizes that fair value is a market-based measurement. It establishes a fair value hierarchy that distinguishes between assumptions developed based on market data obtained from independent external sources and the reporting entities own
assumptions. Further, it specifies that fair value measurement should consider adjustment for risk, such as the risk inherent in the valuation technique or its inputs. For assets and liabilities measured at fair value on a recurring basis, SFAS
No. 157 expands the required disclosures concerning the inputs used to measure fair value. See also Notes 11 and 12 to the financial statements.

Reclassifications Certain reclassifications have been made to prior year balances to conform with the current year presentation. These reclassifications have no effect on the previously reported
results of operations.

Recently issued financial accounting standards  In October 2008, the FASB issued FSP FAS
157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. The FSP clarifies the application of SFAS No. 157, Fair Value Measurement, and provides an example to illustrate
key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The FSP is effective upon issuance, including for prior periods for which financial statements have not been issued.
Revisions resulting from a change in the valuation technique or its application should be accounted for as a change in accounting estimate; however, the disclosure provisions for a change in accounting estimate are not required for revisions
resulting from a change in valuation technique or its application. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FAS 142-3),
which amends the factors that should be considered in developing renewal or extension assumptions used for purpose of determining the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142).



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FAS 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash
flows used to measure the fair value of the asset under SFAS 141(R), Business Combinations, and other US generally accepted accounting principles. FAS 142-3 is effective for fiscal years beginning after December 15, 2008.
Earlier application is not permitted. The Company believes the impact of adopting FAS 142-3 will not have a material effect on the Consolidated Financial Statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 requires specific disclosures regarding the location
and amounts of derivative instruments in the Companys financial statements; how derivative instruments and related hedged items are accounted for; and how derivative instruments and related hedged items affect the Companys financial
position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods after November 15, 2008. Early application is permitted. We do not believe that this pronouncement
will have an impact on our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51, which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary by clarifying that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as a component of equity. It requires that changes in a parents ownership interest while the
parent retains its controlling interest be accounted for as equity transactions and any retained noncontrolling equity investment upon the deconsolidation of a subsidiary be initially measured at fair value. SFAS No. 160 is effective for fiscal
years beginning on or after December 15, 2008 and shall be applied prospectively, except for the presentation and disclosure requirements which shall be applied retrospectively. We do not believe that this pronouncement will have an impact on
our financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141R (revised 2007), Business
Combinations which establishes principles and requirements on how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the
acquisition date fair value, as well as the recognition and measurement of goodwill acquired in a business combination. SFAS No. 141R also requires certain disclosures to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. Acquisition costs associated with the business combination will generally be expensed as incurred. SFAS No. 141R is effective prospectively to business combinations in fiscal years beginning on or
after December 15, 2008. We do not believe that this pronouncement will have an impact on our financial condition or results of operations.



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|2. | Loans and allowance for loan losses
|-- | -----------------------------------

Loans are
summarized as follows at December 31.



|                                |  |      |             |      |   |            
|------------------------------- |  | ---- | ----------- | ---- | - | -----------
|Loans                           |  | 2008 |             | 2007
|Consumer                        |  | $    | 190,703,397 |      | $ | 141,210,443
|Taxi medallion                  |  |      | 123,841,952 |      |   | 88,890,219 
|Commercial:                     |  |      |             |      |   |            
|Asset-based                     |  |      | 78,745,557  |      |   | 72,929,629 
|Construction                    |  |      | 7,794,154   |      |   | 14,855,725 
|                                |  |      |             |      |   |            
|Total commercial                |  |      | 86,539,711  |      |   | 87,785,354 
|Deferred loan acquisition costs |  |      | 5,825,904   |      |   | 4,533,788  
|                                |  |      |             |      |   |            
|Total loans                     |  | $    | 406,910,964 |      | $ | 322,419,804
|                                |  |      |             |      |   |            

In October 2008, the Bank purchased approximately $26,000,000 of medallion loans from an
unaffiliated third party for cash.

Changes in the allowance for loan losses are summarized as follows.



|                          |  |   |            |  
|------------------------- |  | - | ---------- | -
|Balance at 12/31/05       |  | $ | 5,025,131  |  
|Provision for loan losses |  |   | 3,197,752  |  
|Loan charge-offs          |  |   | (3,298,937 | )
|Recoveries                |  |   | 1,132,839  |  
|                          |  |   |            |  
|Balance at 12/31/06       |  |   | 6,056,785  |  
|Provision for loan losses |  |   | 5,177,823  |  
|Loan charge-offs          |  |   | (5,320,596 | )
|Recoveries                |  |   | 1,397,418  |  
|                          |  |   |            |  
|Balance at 12/31/07       |  |   | 7,311,430  |  
|Provision for loan losses |  |   | 11,300,146 |  
|Loan charge-offs          |  |   | (9,565,538 | )
|Recoveries                |  |   | 1,761,779  |  
|                          |  |   |            |  
|Balance at 12/31/08       |  | $ | 10,807,817 |  
|                          |  |   |            |  

The loan charge-offs and recoveries resulted from the consumer portfolio.



|3. | Investment securities
|-- | ---------------------

Fixed maturity securities
available-for-sale at December 31, 2008 consists of the following.



|                                                                           |  |               |            |                      |   |                       |  |            |         |  |   |           
|-------------------------------------------------------------------------- |  | ------------- | ---------- | -------------------- | - | --------------------- |  | ---------- | ------- |  | - | ----------
|                                                                           |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Mortgage-backed securities, principally obligations of US federal agencies |  | $             | 17,707,234 |                      | $ | 170,844               |  | $          | 159,320 |  | $ | 17,718,758
|State and municipalities                                                   |  |               | 2,445,000  |                      |   | 30,998                |  |            | 106,498 |  |   | 2,369,496 
|                                                                           |  |               |            |                      |   |                       |  |            |         |  |   |           
|Total                                                                      |  | $             | 20,152,234 |                      | $ | 201,838               |  | $          | 265,818 |  | $ | 20,088,254
|                                                                           |  |               |            |                      |   |                       |  |            |         |  |   |           

Fixed maturity securities available-for-sale at December 31, 2007 consists of the following.



|                                                                           |  |               |            |                      |   |                       |  |            |         |  |   |           
|-------------------------------------------------------------------------- |  | ------------- | ---------- | -------------------- | - | --------------------- |  | ---------- | ------- |  | - | ----------
|                                                                           |  | AmortizedCost |            | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | Fair Value
|Mortgage-backed securities, principally obligations of US federal agencies |  | $             | 19,149,260 |                      | $ | 144,982               |  | $          | 120,165 |  | $ | 19,174,077
|State and municipalities                                                   |  |               | 2,650,000  |                      |   | 23,286                |  |            | 9,530   |  |   | 2,663,756 
|                                                                           |  |               |            |                      |   |                       |  |            |         |  |   |           
|Total                                                                      |  | $             | 21,799,260 |                      | $ | 168,268               |  | $          | 129,695 |  | $ | 21,837,833
|                                                                           |  |               |            |                      |   |                       |  |            |         |  |   |           



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The amortized cost and estimated market value of investment securities as of December 31, 2008 by
contractual maturity are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                                       |  |                |            |              |   |           
|-------------------------------------- |  | -------------- | ---------- | ------------ | - | ----------
|                                       |  | Amortized Cost |            | Market Value
|Due in one year or less                |  | $              |           |              | $ |          
|Due after one year through five years  |  |                |           |              |   |          
|Due after five years through ten years |  |                | 1,035,620  |              |   | 1,036,399 
|Due after ten years                    |  |                | 19,116,614 |              |   | 19,051,855
|                                       |  |                |            |              |   |           
|Total                                  |  | $              | 20,152,234 |              | $ | 20,088,254
|                                       |  |                |            |              |   |           

Information pertaining to securities with gross unrealized losses at December 31, 2008 and
2007 aggregated by investment category and length of time that individual securities have been in a continuous loss position follows.



|                                                                           |  |                         |         |                    |   |                       |  |            |         |  |   |          
|-------------------------------------------------------------------------- |  | ----------------------- | ------- | ------------------ | - | --------------------- |  | ---------- | ------- |  | - | ---------
|                                                                           |  | Less than Twelve Months |         | Over Twelve Months
|December 31, 2008                                                          |  | GrossUnrealizedLosses   |         | Fair Value         |   | GrossUnrealizedLosses |  | Fair Value
|Mortgage-backed securities, principally obligations of US federal agencies |  | $                       | 88,019  |                    | $ | 6,678,469             |  | $          | 71,301  |  | $ | 2,739,699
|State and municipalities                                                   |  |                         | 106,498 |                    |   | 743,502               |  |            |        |  |   |         
|                                                                           |  |                         |         |                    |   |                       |  |            |         |  |   |          
|Total                                                                      |  | $                       | 194,517 |                    | $ | 7,421,971             |  | $          | 71,301  |  | $ | 2,739,699
|                                                                           |  |                         |         |                    |   |                       |  |            |         |  |   |          
|                                                                           |  |                        
|                                                                           |  | Less than Twelve Months |         | Over Twelve Months
|December 31, 2007                                                          |  | GrossUnrealizedLosses   |         | Fair Value         |   | GrossUnrealizedLosses |  | Fair Value
|Mortgage-backed securities, principally obligations of US federal agencies |  | $                       |        |                    | $ |                      |  | $          | 120,165 |  | $ | 8,291,706
|State and municipalities                                                   |  |                         | 4,084   |                    |   | 495,916               |  |            | 5,446   |  |   | 459,554  
|                                                                           |  |                         |         |                    |   |                       |  |            |         |  |   |          
|Total                                                                      |  | $                       | 4,084   |                    | $ | 495,916               |  | $          | 125,611 |  | $ | 8,751,260
|                                                                           |  |                         |         |                    |   |                       |  |            |         |  |   |          

Unrealized losses on securities have not been recognized into income because the issuers
bonds are of high credit quality, and the Bank has the intent and ability to hold the securities for the foreseeable future. The decline in fair value is primarily due to the decrease in the value of the underlying collateral. The fair value is
expected to recover as the bonds approach the maturity date.



|4. | Fixed assets
|-- | ------------

Fixed assets and their related useful
lives at December 31 were as following:



|                                               |  |              |  |      |          |   |      |   |          |  
|---------------------------------------------- |  | ------------ |  | ---- | -------- | - | ---- | - | -------- | -
|                                               |  | Useful lives |  | 2008 |          |   | 2007 |  
|Computer software                              |  | 3 years      |  | $    | 189,237  |   |      | $ | 128,037  |  
|Furniture and fixtures                         |  | 5-10 years   |  |      | 91,552   |   |      |   | 85,376   |  
|Leasehold improvements                         |  | 3-5 years    |  |      | 66,749   |   |      |   | 61,550   |  
|Equipment                                      |  | 5 years      |  |      | 58,232   |   |      |   | 40,875   |  
|Telephone equipment                            |  | 3 years      |  |      | 36,287   |   |      |   | 34,347   |  
|Deposit system                                 |  | 3 years      |  |      | 13,975   |   |      |   | 13,975   |  
|                                               |  |              |  |      |          |   |      |   |          |  
|                                               |  |              |  |      | 456,032  |   |      |   | 364,160  |  
|Less accumulated depreciation and amortization |  |              |  |      | (249,639 | ) |      |   | (165,856 | )
|                                               |  |              |  |      |          |   |      |   |          |  
|Net fixed assets                               |  |              |  | $    | 206,393  |   |      | $ | 198,304  |  
|                                               |  |              |  |      |          |   |      |   |          |  



|5. | Deposits
|-- | --------

At December 31, 2008 the scheduled
maturities of all time deposits were as follows.



|      |  |   |            
|----- |  | - | -----------
|2009  |  | $ | 229,863,000
|2010  |  |   | 54,986,000 
|2011  |  |   | 81,559,000 
|      |  |   |            
|Total |  | $ | 366,408,000
|      |  |   |            

All time deposits are in denominations of less than $100,000 and have been originated through
Certificate of Deposit Broker relationships. The weighted average interest rate of deposits outstanding at December 31, 2008 was 3.85%.



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##### Table of Contents

|6. | Income taxes
|-- | ------------

Income taxes are summarized as
follows.



|                               |  |      |           |   |      |   |            |      |  |   |          
|------------------------------ |  | ---- | --------- | - | ---- | - | ---------- | ---- |  | - | ---------
|                               |  | 2008 |           |   | 2007 |   |            | 2006
|Current                        |  |      |           |   |      |   |            |      |  |   |          
|Federal                        |  | $    | 2,979,078 |   |      | $ | 4,770,556  |      |  | $ | 3,168,568
|State                          |  |      | 476,433   |   |      |   | 737,776    |      |  |   | 489,231  
|Deferred                       |  |      |           |   |      |   |            |      |  |   |          
|Federal                        |  |      | (592,725  | ) |      |   | (1,263,743 | )    |  |   | 730,160  
|State                          |  |      | (87,165   | ) |      |   | (185,844   | )    |  |   |         
|                               |  |      |           |   |      |   |            |      |  |   |          
|Net provision for income taxes |  | $    | 2,775,621 |   |      | $ | 4,058,745  |      |  | $ | 4,387,959
|                               |  |      |           |   |      |   |            |      |  |   |          

The following table reconciles the provision for income taxes to the US federal statutory income
tax rate for the years ended December 31, 2008, 2007, and 2006.



|                                |  |      |   |  |      |   |  |      |  
|------------------------------- |  | ---- | - |  | ---- | - |  | ---- | -
|                                |  | 2008 |   |  | 2007 |   |  | 2006 |  
|US federal statutory tax rate   |  | 34.0 | % |  | 34.0 | % |  | 34.0 | %
|State taxes                     |  | 5.6  |   |  | 4.3  |   |  | 4.6  |  
|Prior year under (over) accrual |  |     |   |  | 4.0  |   |  | 7.4  |  
|Other                           |  | 0.3  |   |  | (4.7 | ) |  | (4.4 | )
|                                |  |      |   |  |      |   |  |      |  
|Effective income tax rate       |  | 39.9 | % |  | 37.6 | % |  | 41.6 | %
|                                |  |      |   |  |      |   |  |      |  

The Bank files its tax returns on a separate company basis.

Deferred tax balances reflected in the balance sheet were as follows.



|                                         |  |      |            |   |      |   |            |  
|---------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                         |  | 2008 |            |   | 2007 |  
|Provision for loan losses                |  | $    | 4,031,258  |   |      | $ | 2,727,106  |  
|Loan origination fees                    |  |      | (2,265,914 | ) |      |   | (1,768,963 | )
|Unrealized (gains) losses on investments |  |      | 23,993     |   |      |   | (14,465    | )
|Other                                    |  |      | (139,825   | ) |      |   | (12,513    | )
|                                         |  |      |            |   |      |   |            |  
|Net deferred tax asset (liability)       |  | $    | 1,649,512  |   |      | $ | 931,165    |  
|                                         |  |      |            |   |      |   |            |  

In assessing the realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be realized. The realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences, as
determined pursuant to SFAS No. 109, Accounting for Income Taxes, become deductible. Management considers the reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Managements evaluation of the realizability of deferred tax assets must consider both positive and negative evidence. The weight given to the potential effects of positive and negative evidence is based on the extent to which it
can be objectively verified. Based on these considerations, no valuation allowance was deemed necessary as of December 31, 2008 and 2007.



|7. | Other transactions with affiliates
|-- | ----------------------------------

The Banks
taxi medallion, asset-based commercial, and certain other construction loans aggregated $204,055,000 and $163,816,000 at December 31, 2008 and 2007. These loans are marketed and serviced by the affiliates. The Bank paid $1,492,000, $1,395,000,
and $1,327,000 for loan servicing fees to affiliates for 2008, 2007, and 2006. Origination fees of $804,000, $529,000, and $540,000 were capitalized as deferred costs and will be amortized to interest income over the life of the loan for 2008, 2007,
and 2006. Amortization costs were $680,000, $526,000, and $567,000 for 2008, 2007, and 2006.

As part of the settlement for the purchase of
the taxi medallion loans, the Bank issued a subordinated promissory note to Medallion for $305,553 in 2004. The promissory note is interest bearing at the rate of 3 month Libor (1.43% at December 31, 2008) plus 125 basis points, adjustable
quarterly, interest paid monthly. The promissory note will be used to cover any loss that may arise in the taxi medallion loan purchased portfolio. The note was paid down to $105,553 in 2006. The remaining balance of the promissory note will be
repaid to Medallion after the purchased portfolio has liquidated. Interest expense of $5,000, $7,000, and $16,000 was paid on this note for 2008, 2007, and 2006.



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At December 31, 2008, the Bank owed $130,000 to affiliates for origination fees, monthly servicing
fees on loans, charges for corporate overhead, legal and business development expenses due to the affiliates, partially offset by payments due the Bank from collection of loan payments by affiliates. At December 31, 2007, the Bank was owed
$1,120,000 for collections of loan payments by affiliates, partially offset by origination fees, monthly servicing fees on loans, charges for corporate overhead, and legal and business development expenses due to the affiliates.

The bank reimbursed the parent for expenses incurred on its behalf of $192,000, $173,000, and $167,000 for 2008, 2007, and 2006.



|8. | 401(k) plan
|-- | -----------

The Bank participates in the 401(k)
plan offered by Medallion. The 401(k) Plan covers all full and part-time employees of the Bank who have attained the age of 21 and have a minimum of one year of service. Under the 401(k) Plan, an employee may elect to defer not less than 1% and no
more than 15% of the total annual compensation that would otherwise be paid to the employee, provided however, that employees contributions may not exceed certain maximum amounts determined under the Internal Revenue Code. Employee
contributions are invested in various mutual funds according to the directions of the employee. At the discretion of Medallions Board of Directors, the Bank can provide for employer matching contributions. Medallion has elected to match
employee contributions up to one-third of the employees contribution, but not greater than 2% of the portion of the employees annual salary eligible for 401(k) benefits. For the years ended December 31, 2008, 2007, and 2006, the
Bank provided $20,000, $15,000, and $11,000 in employer matching, which amount is included in salaries and benefits expense on the accompanying statement of operations.



|9. | Commitments and contingencies
|-- | -----------------------------

Lines of
credit At December 31, 2008, the Bank had unsecured Federal Funds lines with correspondent banks of $25,000,000.

Loans At December 31, 2008, the Bank had commitments to extend credit of $31,083,000 to asset-based customers as long as there is no violation of any condition established in the contract. The Bank had commitments
to extend credit of $526,000 to real estate customers for unfunded amounts.

Leases The Bank leases office space under
a non-cancelable operating lease that expires November 2012. Rental expense related to the lease was $120,000, $111,000, and $112,000 for the years ended December 31, 2008, 2007, and 2006. The Bank has the option to extend the lease term for an
additional five years.

Future minimum lease payments under this operating lease as of December 31, 2008 were as follows:



|      |  |   |        
|----- |  | - | -------
|2009  |  | $ | 122,880
|2010  |  |   | 125,446
|2011  |  |   | 129,208
|2012  |  |   | 121,691
|2013  |  |   |       
|      |  |   |        
|Total |  | $ | 499,225
|      |  |   |        



|10. | Capital requirements
|--- | --------------------

The Bank is subject to
various regulatory capital requirements administered by the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (UDFI). Failure to meet minimum capital requirements can initiate certain mandatory and
possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Banks financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative measures of the Banks assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks capital amounts and
classifications are also subject to qualitative judgments by the bank regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios as defined in the regulations (set forth in the table below). Additionally, as conditions of granting the
Banks application for federal deposit insurance, the FDIC ordered that beginning paid-in-capital funds of not less than $22,000,000 be provided, and that a ratio of Tier 1 Capital as defined in section 325.2 of the FDIC Rules and Regulations
(12 C.F.R. § 325.2), to total assets of not less than 15% will be maintained, and an adequate allowance for loan losses shall be maintained and no dividends shall be paid throughout the first three years of operation. As of December 31,
2008, the Banks Tier 1 leverage capital ratio was 14.7%, below the FDIC mandated 15%, and as a result, in January 2009, $1,750,000 of capital was contributed by the parent to the Bank.



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##### Table of Contents

The Banks actual and the regulatory minimum capital amounts and ratios as of December 31, 2008 and
2007 are presented in the following tables.



|                                         |  |        |            |       |                                      |   |        |                                                                       |            |  |     |        |  |       |            |  |      |  
|---------------------------------------- |  | ------ | ---------- | ----- | ------------------------------------ | - | ------ | --------------------------------------------------------------------- | ---------- |  | --- | ------ |  | ----- | ---------- |  | ---- | -
|                                         |  | Actual |            |       | Minimum for CapitalAdequacy Purposes |   |        | Minimum To be WellCapitalized Under PromptCorrective ActionProvisions |           
|As of December 31, 2008                  |  | Amount |            | Ratio |                                      |   | Amount |                                                                       | Ratio      |  |     | Amount |  | Ratio |           
|Tier 1 Capital (to average assets)       |  | $      | 63,808,000 |       | 14.7                                 | % |        | $                                                                     | 17,383,400 |  | 4.0 | %      |  | $     | 21,729,250 |  | 5.0  | %
|Tier 1 Capital (to risk-weighted assets) |  |        | 63,808,000 |       | 15.3                                 |   |        |                                                                       | 16,723,560 |  | 4.0 |        |  |       | 25,085,340 |  | 6.0  |  
|Total Capital (to risk-weighted assets)  |  |        | 69,105,000 |       | 16.5                                 |   |        |                                                                       | 33,447,120 |  | 8.0 |        |  |       | 41,808,900 |  | 10.0 |  
|                                         |  |        |           
|                                         |  | Actual |            |       | Minimum for CapitalAdequacy Purposes |   |        | Minimum To be WellCapitalized Under PromptCorrective ActionProvisions |           
|As of December 31, 2007                  |  | Amount |            | Ratio |                                      |   | Amount |                                                                       | Ratio      |  |     | Amount |  | Ratio |           
|Tier 1 Capital (to average assets)       |  | $      | 54,869,000 |       | 15.8                                 | % |        | $                                                                     | 13,884,440 |  | 4.0 | %      |  | $     | 17,355,550 |  | 5.0  | %
|Tier 1 Capital (to risk-weighted assets) |  |        | 54,869,000 |       | 16.3                                 |   |        |                                                                       | 13,444,120 |  | 4.0 |        |  |       | 20,166,180 |  | 6.0  |  
|Total Capital (to risk-weighted assets)  |  |        | 59,109,000 |       | 17.6                                 |   |        |                                                                       | 26,888,240 |  | 8.0 |        |  |       | 33,610,300 |  | 10.0 |  



|11. | Fair value of financial instruments
|--- | -----------------------------------

Statement of
Financial Accounting Standard No. 107, Disclosures About Fair Value of Financial Instruments (SFAS 107) requires disclosure of fair value information about certain financial instruments, whether assets, liabilities, or
off-balance-sheet commitments, if practicable. The following methods and assumptions were used to estimate the fair value of each class of financial instrument. Fair value estimates that were derived from broker quotes cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

(a) Loans Current market value most closely approximates book value.

(b) Investments The Banks investments are recorded at
the estimated fair value of such investments.

(c) Cash  book value equals market value.

(d) Floating rate borrowings -Due to the short-term nature of these instruments, the carrying amount approximates fair value.

(e) Commitments to extend credit -The fair value of commitments to extend credit is estimated using the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements and present creditworthiness of the counter parties. For fixed rate loan commitments, fair value also includes a consideration of the difference between the current levels
of interest rates and the committed rates. At December 31, 2008 and 2007, the estimated fair value of these off-balance-sheet instruments was not material.

(f) Fixed rate borrowings -The fair value of time deposits issued is estimated based on current market interest rates for similar debt.



|                       |  |                   |         |                   |   |                |  |            |         |  |   |        
|---------------------- |  | ----------------- | ------- | ----------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                       |  | December 31, 2008 |         | December 31, 2007
|(Dollars in thousands) |  | CarryingAmount    |         | Fair Value        |   | CarryingAmount |  | Fair Value
|Financial Assets       |  |                   |         |                   |   |                |  |            |         |  |   |        
|Loans                  |  | $                 | 396,103 |                   | $ | 396,103        |  | $          | 315,108 |  | $ | 315,108
|Investment securities  |  |                   | 20,088  |                   |   | 20,088         |  |            | 21,838  |  |   | 21,838 
|Cash                   |  |                   | 9,401   |                   |   | 9,401          |  |            | 17,025  |  |   | 17,025 
|Financial Liabilities  |  |                   |         |                   |   |                |  |            |         |  |   |        
|Funds borrowed         |  |                   | 366,408 |                   |   | 366,408        |  |            | 302,906 |  |   | 302,906



|12. | Fair value of assets and liabilities
|--- | ------------------------------------

SFAS
No. 157 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements.



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##### Table of Contents

In accordance with SFAS No. 157, the Bank has categorized its financial instruments, based on the
priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority
to unobservable inputs (level 3).

As required by SFAS No. 157, when the inputs used to measure fair value fall within different
levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a level 3 fair value measurement may include
inputs that are observable (level 1 and 2) and unobservable (level 3). Therefore gains and losses for such assets and liabilities categorized within the level 3 table below may include changes in fair value that are attributable to both observable
inputs (level 1 and 2) and unobservable inputs (level 3).

Financial assets and liabilities recorded on the balance sheets are categorized
based on the inputs to the valuation techniques as follows:

Level 1. Financial assets and liabilities whose values are based on
unadjusted quoted prices for identical assets or liabilities in an active market that the Bank has the ability to access (examples include active exchange-traded equity securities, exchanged-traded derivatives, most US Government and agency
securities, and certain other sovereign government obligations).

Level 2.Financial assets and liabilities whose values are based on
quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:



| | A) | Quoted prices for similar assets or liabilities in active markets (for example, restricted stock);
| | -- | --------------------------------------------------------------------------------------------------



| | B) | Quoted price for identical or similar assets or liabilities in non-active markets (for example, corporate and municipal bonds, which trade infrequently);
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| | C) | Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and
currency swaps); and
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | D) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or
liability (examples include certain residential and commercial mortgage-related assets, including loans, securities and derivatives).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect
managements own assumptions about the assumptions a market participant would use in pricing the assets or liability (examples include certain private equity investments, certain residential and commercial mortgage-related assets (including
loans, securities, and derivatives), and long-dated or complex derivatives including certain equity derivatives and long-dated options on gas and power).

Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting level 3 of the fair value hierarchy are reported as transfers
in/out of the level 3 category.

The following table presents the Banks fair value hierarchy for those assets and liabilities
measured at fair value on a recurring basis as of December 31, 2008.



|                                            |  |         |   |         |   |         |  |       |   |  |   |       
|------------------------------------------- |  | ------- | - | ------- | - | ------- |  | ----- | - |  | - | ------
|(Dollars in thousands)                      |  | Level 1 |   | Level 2 |   | Level 3 |  | Total
|Assets                                      |  |         |   |         |   |         |  |       |   |  |   |       
|Available-for-sale investment securities(1) |  | $       |  |         | $ | 20,088  |  | $     |  |  | $ | 20,088



|(1) | Total realized and unrealized gains (losses) of ($64) were included in accumulated other comprehensive income (loss) for 2008 related to these assets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

The following table presents the Banks fair value hierarchy for those assets and liabilities
measured at fair value on a non-recurring basis as of December 31, 2008.



|                       |  |         |   |         |   |         |  |       |       |  |   |      
|---------------------- |  | ------- | - | ------- | - | ------- |  | ----- | ----- |  | - | -----
|(Dollars in thousands) |  | Level 1 |   | Level 2 |   | Level 3 |  | Total
|Assets(1)              |  |         |   |         |   |         |  |       |       |  |   |      
|Impaired loans         |  | $       |  |         | $ |        |  | $     | 3,935 |  | $ | 3,935



|(1) | Total unrealized losses of $571 for impaired loans were included in income for 2008 related to these assets.
|--- | ------------------------------------------------------------------------------------------------------------

See Note 1 for further discussion of valuation techniques used in measuring fair value.



|13. | Subsequent events  Troubled Assets Relief Program (TARP)
|--- | ---------------------------------------------------------

On February 27, 2009, the Bank issued and sold, and the US Treasury purchased under the TARP Capital Purchase Program (the CPP), (1) 11,800 shares of the Banks Fixed Rate Non-Cumulative Perpetual
Preferred Stock, Series A, and (2) a warrant (the Warrant), which was immediately exercised, to purchase up to 590 shares of the Banks Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, for an aggregate purchase price of
approximately $11,800,000 in cash. The liquidation preference of both Series is $1,000 per share.

The securities were sold in a private
placement exempt from SEC registration.

Non-cumulative dividends on the Series A shares will accrue on the liquidation preference at a
rate of 5% per annum for the first five years, and at a rate of 9% per annum thereafter, and the dividends on the Series B shares will accrue on the liquidation preference at a rate of 9% per annum, both, if, as, and when declared by
the Banks Board of Directors out of funds legally available thereof. The Preferred Shares have no maturity date and rank senior to the Banks common stock (and pari passu with one another) with respect to the payment of dividends and
distributions and amounts payable upon liquidation, dissolution, and winding up of the Bank. The Banks Articles of Amendments provide that, subject to the approval of the FDIC, the Preferred Shares are redeemable at the option of the Bank at
100% of their liquidation preference plus declared and unpaid dividends, provided, however, that the Preferred Shares may be redeemed prior to February 27, 2012 only if (i) the Bank has raised aggregate gross proceeds in one or more
Qualified Equity Offerings, as defined, of at least $3,097,500 and (ii) the aggregate redemption price does not exceed the aggregate net proceeds from such offerings. The Series B shares cannot be redeemed until the Series A shares have been
redeemed.

On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the ARRA) was signed into law. The ARRA, among
other things, directs the US Treasury to permit CPP participants to redeem the preferred stock issued under the CPP without first requiring a Qualified Equity Offering, upon consultation with the appropriate Federal banking agency.

The agreements between the Bank and the US Treasury pursuant to which the Preferred Shares and the Warrant were sold contain limitations on the payment
of common stock dividends to a quarterly rate of $1.00 per share or $1,000,000, and on the Banks ability to repurchase its common stock, and subjects the Bank and Medallion to certain of the executive compensation limitations and requirements
included in the Emergency Economic Stabilization Act of 2008 (the EESA). As a condition to the closing of the transaction, Medallion and its senior executive officers have agreed to all terms and conditions.

The ARRA amends the EESA to require the US Treasury to issue additional executive compensation standards applicable to CPP participants (which may
include parent companies such as Medallion), which will include, among other things, the repayment by the senior executive officers and other highly compensated employees of bonus amounts if the bonus was based on materially inaccurate financial
information or other criteria and the prohibition of the payment or accrual of any bonus to the institutions highest paid executive officer except through restricted stock with delayed vesting and subject to dollar limits. The ARRA further
requires CPP participants to permit stockholders to vote on a non-binding resolution approving the institutions compensation of executives.



F-49